Short Dated Options to Deftly Manage Oil Market Shocks"Volatility gets you in the gut. When prices are jumping around, you feel different from when they are stable" quipped Peter L Bernstein, an American financial historian, investor, economist, and an educator.
Crude oil prices are influenced by a variety of macro drivers. Oil market shocks are not rare events. They appear to recur at a tight frequency. From negative prices to sharp spikes in volatility, crude oil market participants "enjoy" daily free roller-coaster rides.
Precisely for this reason, crude oil derivatives are among the most liquid and sophisticated markets globally. This paper delves specifically into weekly CME Crude Oil Weekly Options and is set out in three parts.
First, what’s unique about short-dated options? Second, tools enabling investors to better navigate crude oil market dynamics. Third, a case study illustrating the usage of weekly crude oil options.
PART 1: WHAT’S UNIQUE ABOUT CME CRUDE OIL WEEKLY OPTIONS?
Macro announcements such as US CPI, China CPI, Fed rate decisions, Oil inventory changes and OPEC meetings drive oil price volatility.
Sharp price movements can lead to premature stop-loss triggers. When prices gap up or gap down at open, stop orders perform poorly leading to substantial margin calls.
Weekly options enable hedging against these risks with limited downside and substantial upside.
Closer to expiration, options prices are sensitive to changes in the prices of the underlying. Small underlying price moves can have outsized value creation through short-dated options.
Hedging with weekly options allows investors to enjoy large upside potential. Short duration vastly reduces the options premium burden. This high risk-reward ratio has made short-dated options popular among both buyers and sellers.
The daily traded notional value of Zero-DTE options (Zero Days-To-Expiry, 0DTE) have grown to USD 1 Trillion. Among S&P 500 options, 0DTE options comprise 53% of the average daily volume (ADV), up from 19% a year ago.
In 2020, CME launched Weekly WTI options with Friday expiry (LO1-5), offering robust, round-the-clock liquidity and enabling precise event exposure management at minimal cost.
These weekly options are now the fastest growing energy products at CME with ADV growing 69% YoY with June 2023 ADV up 136% YoY.
Building on rising demand, CME added weekly options expiring Monday and Wednesday. At any time, the four nearest weeks of each option are available for trading.
Weekly options settle to the latest benchmark CL contract and like other CME WTI products, they are physically deliverable ensuring price integrity.
Each weekly WTI options contract provides exposure to 1,000 barrels. Every USD 0.01 change per barrel change in WTI represents a P&L change of USD 10 in premium per contract.
PART 2: EIGHT TOOLS TO BETTER NAVIGATE CRUDE OIL MARKET DYNAMICS
Highlighted below are eight critical tools across TradingView and CME enabling investors to better navigate oil market dynamics.
1. OPEC+ Watch
OPEC+ Watch charts the probability of different outcomes from OPEC+ meetings. Probabilities are derived from actual market data & represent a condensed consensus market view of forthcoming meetings.
2. News Flow
TradingView’s News section collates the key market developments impacting crude oil.
3. Forward Curve
TradingView maps crude oil prices across the forward curve exhibiting oil’s term structure.
Augmenting the forward curve chart is a table CL contracts across various expiries with technical signals embedded in them enabling investors to spot calendar spread trading opportunities.
4. TradingView Scripts
Supported by a vibrant community of script creators, TradingView has curated scripts catering to the specific needs of crude oil traders.
OIL WTI/Brent Spread by MarcoValente: Shows the spread between WTI and Brent crude. This spread is growing in importance with growth in US oil exports.
Seasonality Indicator by tradeforopp: Presents seasonal price trends along with key pivot points to guide traders.
5. Economic Calendars
TradingView’s economic calendar highlights upcoming economic events segmented by dates and with countdown timers to help traders better manage their portfolios.
Augmenting, TradingView’s calendar is CME’s Economic Events Analyzer which lists key events specifically impacting energy markets and highlights the relevant weekly options contract.
6. Options Expiration Calendar
CME’s Options Expiration Calendar is a comprehensive yet condensed view of upcoming expiration dates of WTI options, even those that are not listed yet.
7. Daily/Weekly Options Report
CME’s Daily/Weekly Options Report profiles volumes and OI by strike price for weekly options supplying key stats such as Put/Call ratio and key strike levels at a glance.
8. Strategy Simulator
CME’s strategy simulator allows investors to simulate diverse options strategies. Selecting the relevant instruments and adding each component of the overall position automatically calculates the payoff while still allowing modification of key statistics such as volatility based on user inputs.
The below shows the payoff of an ATM straddle position for the upcoming Monday weekly option.
It also allows simulating various market conditions. Selecting price trends such as up fast, up slow, flat, down slow, down fast can simulate the changes in P&L.
PART 3: ILLUSTRATING USAGE OF WEEKLY CRUDE OIL OPTIONS
Why does CME list weekly options expiring on Monday, Wednesday, and Friday?
Each of these address specific macro events. OPEC meeting outcomes are typically announced over the weekend leading to gaps in prices on Monday. EIA weekly crude oil inventory data are released on Wednesdays. Key US economic data such as CPI and Non-farm payrolls are released on Fridays.
Use Case for Options expiring on Monday
These can be used to hedge against downside risk associated with weekend events.
For instance, in April, OPEC+ announced major supply cuts at their meeting on Sunday. This led to WTI price spiking 4% at market open.
This can lead to “gap risk.” Gap risk refers to the risk that markets may open sharply above or below their previous close. Since, price never passes the levels in between, stop loss orders fail to trigger at set levels resulting in more-than-anticipated realised losses.
Such gap risks from weekend news can be managed through Monday weekly options which provides a predictable and resilient payoff with limited downside risk.
Use Case for Options expiring on Wednesday
Oil inventory reports by EIA (U.S. Energy Information Administration) and API (American Petroleum Institute) are released every week on Tuesday and Wednesday respectively. Major misses/beats against expectations for these releases can result in large price moves.
Wednesday options come in handy to better manage volatility stemming from these shocks or surprises.
Weekly options provide superior ROI on small moves when compared to futures. Favourable price moves deliver larger payoffs from position in weekly options than futures and shorter expiries allow for much lower premium than monthly options.
Illustrating with Back tested Results
On June 14th, Crude price fell by 1.7% (USD 1.2) to USD 68.7/barrel upon release of inventory data that showed a larger than expected inventory build-up.
In the lead up to this data release, a crude oil participant could either (a) Short Crude Oil Futures, or (b) Long Weekly Crude Oil Put Option.
Summary outcomes from these two strategies are tabulated and charted below. The results speak for themselves. Short dated long put option is capital efficient, prudent, and credible as a risk management tool. That said, participants must evaluate the risk return profile taking into consideration market liquidity and volatility levels, among others, when choosing between instruments.
KEY TAKEAWAYS
In summary,
1) Weekly Options can be cleverly deployed to hedge against shocks in oil markets.
2) TradingView & CME provide a rich suite of tools to deftly navigate the oil market dynamics.
3) Weekly options expiring on (a) Monday helps manoeuvre developments over the weekend, (b) Wednesday helps to manage inventory data linked shocks, and (c) Friday enables investors to trade and hedge around key US economic data.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Community ideas
Gold Price on Cusp of Testing June LowThe price of gold appears to be on track to test the June low ($1893) as it extends the series of lower highs and lows from last week.
Gold Price Outlook
The price of gold seems to be tracking the negative slope in the 50-Day SMA ($1941) as it registers a fresh monthly low ($1903), and failure to defend the June low ($1893) may push the Relative Strength Index (RSI) towards oversold territory as it slips to its lowest level since June.
A break/close below the $1886 (23.6% Fibonacci extension) to $1896 (61.8% Fibonacci retracement) region may push the price of gold towards $1843 (50% Fibonacci retracement), with the next area of interest coming in around the March low ($1809).
Nevertheless, the price of gold may attempt to retrace the decline from the start of the month if it holds above the June low ($1893), with a move above $1937 (38.2% Fibonacci extension) raising the scope for a move towards the monthly high ($1966).
Micheal J Burry is not Alone!Who is Micheal J Burry and Why everyone talks about him Today?
Today on most social media pages everyone talks about this news:
Michael Burry just shorted the market with $1.6B
Bought $890M of AMEX:SPY Puts
Bought $740M of NASDAQ:QQQ Puts
This now makes up 93% of his entire portfolio
To me, Michael J Burry is a True Living Legend!
Michael J. Burry is an American investor, hedge fund manager, and physician. He is best known for being among the first investors to predict and profit from the subprime mortgage crisis that occurred between 2007 and 2010.
In 2000, Burry founded the hedge fund Scion Capital. Scion Capital was a very successful hedge fund, and Burry made a lot of money for his investors. However, Scion Capital closed in 2008 after the subprime mortgage crisis.
Michael Burry made a personal profit of $100 million and more than $700 million for his investors during the subprime mortgage crisis. This represents a profit of over 489% for Scion Capital, Burry's hedge fund, between its inception in 2000 and its closure in 2008.
Burry's profit was the result of his bet against the subprime mortgage market. He believed that the market was overvalued and that the housing bubble would eventually burst. He shorted mortgage-backed securities (MBS), which are investments that are backed by pools of mortgages. When the housing bubble burst in 2007, the value of MBS plummeted and Burry's bet paid off handsomely.
Burry's bet against the subprime mortgage market was a very risky one. Many investors thought he was crazy, and he was even sued by some of his own investors. However, Burry's bet turned out to be correct, and he made a lot of money for himself and his investors.
Burry's story is a reminder that it is possible to make a lot of money in the stock market by being a contrarian. He was willing to go against the crowd and bet against the subprime mortgage market, even though most investors thought he was wrong. His bet paid off, and he made a lot of money.
From a Statistical point of view, there are lots of similarities between now and November 2021,
Here are some other famous hedge funds that made money from the subprime mortgage crisis in 2007:
John Paulson's Paulson & Co. made a profit of $20 billion during the crisis. Paulson was one of the first investors to bet against the subprime mortgage market, and he made a lot of money when the housing bubble burst.
David Einhorn's Greenlight Capital made a profit of $2 billion during the crisis. Einhorn was also a contrarian investor, and he bet against the subprime mortgage market.
Seth Klarman's Baupost Group made a profit of $1 billion during the crisis. Klarman is a value investor, and he saw the subprime mortgage market as being overvalued.
George Soros is another famous hedge fund manager who made money from the subprime mortgage crisis. Soros's Quantum Fund made a profit of $1.7 billion during the crisis. Soros was one of the first investors to warn about the dangers of the subprime mortgage market, and he bet against the market.
The NAAIM Exposure Index is a measure of the average exposure to US equity markets reported by members of the National Association of Active Investment Managers (NAAIM). The index is released weekly on Thursdays. Each week, NAAIM members report their exposure on the stock market using a scale of 1 to 5, with 1 representing 100% cash and 5 representing 100% invested in stocks.
The NAAIM Exposure Index is a contrarian indicator. This means that it tends to move in the opposite direction of the stock market. When the stock market is rising, the NAAIM Exposure Index tends to fall, and when the stock market is falling, the NAAIM Exposure Index tends to rise.
This is because the NAAIM Exposure Index is based on the sentiment of active investment managers. When active investment managers are bullish on the stock market, they tend to increase their exposure to stocks. This drives up the NAAIM Exposure Index. However, when active investment managers are bearish on the stock market, they tend to reduce their exposure to stocks. This drives down the NAAIM Exposure Index.
The NAAIM Exposure Index can be used as a tool to identify potential turning points in the stock market. When the NAAIM Exposure Index is high, it suggests that active investment managers are bullish on the stock market and that a correction may be coming. However, when the NAAIM Exposure Index is low, it suggests that active investment managers are bearish on the stock market and that a rally may be coming.
The NAAIM Exposure Index has been on a downward trend for the past 3 years. In August 2020, the index was at 75.93, which is considered to be a neutral level. However, the index has since fallen to 65.49 in August 2023, which is considered to be a bearish level.
Conclusion:
It is highly likely that Micheal J Burry is not Alone!
Are The Bulls Back? ES1! SPY SPXAre the Bulls making a comeback in the S&P? 🐂💪 Get ready for an exclusive analysis! In my latest video, I delve into why the Bears have been dominating the market lately, but there's a glimmer of hope for the Bulls in the S&P. Sadly, the Nasdaq and Russell 2000 haven't joined the party just yet. 📈🚀 Let's talk confirmation and the essential indicators I rely on: Beacon Indicator, Bollinger Bands, Auto Anchored VWAP, and a 5 Day Moving Average. Check out the video to discover the key levels I'm closely monitoring in the S&P 500 ES1!, Nasdaq 100 NQ1!, and Russell 2000 RTY1! Futures Markets. Time to trade wisely! 💼💰 #StockMarket #Trading #BullsVsBears
Falling Wedge in Microsoft Technology stocks have retreated this month as the AI frenzy cools. Microsoft, in particular, has pulled back.
The first pattern on today’s chart is the narrowing range since the slide began in late July. MSFT has made lower highs, but lower lows at a shallower pace. That could have produced a descending triangle, which is potentially bullish.
Second, consider the rally between April 25, when results beat estimates, and July 18, when the company announced pricing for its AI services. The current pullback represents about a 50 percent retracement of that move.
Third, the software giant has remained above its 100-day simple moving average (SMA) since January. But now prices are returning to the vicinity of this longer-term trend indicator.
Finally, stochastics have been in oversold territory for more than a week.
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Palladium Analysis: Is price starting a swing higher? Today's focus: Palladium
Pattern – Descending triangle / Range
Support – 1223
Resistance – 1320
• Palladium added 4.37% on Thursday
• Palladium and Platinum ignored USD strength to finish firm on Thursday.
Hi, and thanks for checking out today’s analysis. We’re looking at Palladium primarily in today’s video, but we have also mentioned Platnuim, as it also posted a solid session on Thursday.
After yesterday’s rally, we have looked at a few things that have stood out in the buyer's favour, but we have also broken down the remaining hurdles and what we want to see from price to confirm the bullish signs.
Do you trade Palladium? If so, please let us know what you think of the descending triangle pattern and if you agree with current volume supporting yesterday’s move.
Have a great day and good trading.
How To Use The Search Box [Beginner Tutorial].How to use the search box tool for beginner traders and those new to the platform. In this session you will learn: how to access the search box, how to input symbols, how to search for symbols using relevant keywords, how to narrow your search using the asset categories and how to apply math functions.
Trade Discipline - Improving Your Entries
How many times have you been stopped out of a great trading idea you noticed just because you missed your original entry and decided to enter at a worse price?
This was most likely due to the fear of missing out (FOMO) and lack of discipline that got you into the trade.
You were right on the market direction, but due to FOMO and your lack of discipline, the trade entry was bad, and you ended up being stopped out, only to then painfully watch the market go your way.
Do not feel bad, as this has happened to the best of us, so this post will discuss methods on how to improve your entries and discipline to ensure that you do not get stopped out again because of a bad entry.
Never chase missed entries.
Let’s say the market is in a nice healthy trend, making a series of higher highs and higher lows. And when you overlay the 20-day moving average over it, you notice the market bounce off the moving average quite a few times. You then get a buy signal near the moving average, but unfortunately, you missed the entry and are just watching the market go up without making any money from it.
Now, when you look at the chart, the market is very far away from the 20-day moving average. So even though the market is currently in an uptrend, ideally you don’t want to be buying now because, from looking at your analysis, the market tends to pull back to the 20-day moving average. If you impulsively buy when the price is very far away from the 20-day moving average, when the price is overstretched and the market has been overbought, there’s a high probability the market will reverse or pullback, and you will most likely get stopped out.
We all miss entries and opportunities; it is completely normal to do so, and sometimes the market can give you a second chance to enter by coming back to your original level. If it does not and you completely miss the move, do not dwell on it; dust it off and move on. The markets are not going anywhere, and plenty more opportunities will come your way.
You can see in the above image why it is a bad idea to chase missed entries. When the impulsive move has happened and you missed the initial move, leave the market alone at that current time. Either wait for a pullback to trade the continuation, or if your analysis is suggesting a possible market reversal, then wait for a confirmation signal and trade the reversal at a good entry price.
Be Proactive.
Many traders, especially beginners, do not place enough importance on entries when trying to get consistent profits in the markets. The reason why entries are important is due to market noise and the limited funds that traders have. Let me explain further: Traders are buying and selling constantly; therefore, all markets have ups and downs (market noise). This means that markets rarely go up and down in a straight line, so when you put your hard-earned capital at risk in a trade, due to the up and down ticks, your capital will float up and down as the market moves up and down. So if your entry is bad, then you are more likely to get stopped out due to market noise.
If you want to see consistency in your trading, it is crucial to work on your timing and discipline. The best thing you can do to improve the entries in your trades is to be proactive, not reactive.
Being proactive means planning ahead for your trade entry. You must do your homework to anticipate and predict the key levels in the markets to help you get the best entries. Setting up trades after the market closes or during quiet hours is one effective way to be proactive and help improve your entry. You will not second-guess yourself as compared to being a reactive trader because you are prepared. The reactive trader, as the name suggests, reacts to the constant ebb and flow of market prices, always working in "the now." More often than not, reactive traders will end up jumping into momentum plays that will reverse on them, leaving this type of trader frustrated and confused.
Use Limit Orders to improve trade entry.
When using a limit order, you place a limit on how much you're willing to pay to buy or sell a specific product. Limit orders allow traders to enter the market at the best possible price. For example, if you have a specific setup with a good entry level that the market may reach, you can place a limit order at that specific price to buy or sell. Limit orders are very helpful in giving traders the patience and discipline to wait for their entry prices instead of spontaneously entering the market at random levels that will most likely stop them out.
The main disadvantage of a limit order is that there are no guarantees that the order will actually go through. The product price must meet the limit order specifications to execute properly; however, even with this disadvantage, it is still better to have better control by entering at a price you want instead of entering at a price you are not comfortable with.
Support and Resistance levels.
Support and Resistance levels are in the markets for a reason, and you should use them to help with your entries. One of the worst things you could do is think the market is going up and end up buying it at a resistance level before it heads down to stop you out, only for it to go back up again.
Always look at your charts, and get into the habit of looking to the left. Why? Because looking to the left will give you information on historical price movements, and with those movements, you will see consistent areas where the market bounced off (Support) and consistent areas where the market pulled back (Resistance). When you really understand this and grasp how support and resistance levels work, you will instinctively understand these levels and will actually notice the market moving towards them to test them. So the next time you think the market is going up, try to enter near or at a support level, and if you think the market is going down, try to enter near or at a resistance level.
The image above shows support and resistance levels in the market. Can you notice how the market is always drawn to these levels? You can see the numerous times the market has traded around these areas. These areas are often good entry points for your trades, and you should always take the time to look at your charts for these levels.
Use additional timeframes.
Using one or more additional timeframes to double-check a trend can help improve your entries.
For example, if you’re using a four-hour chart as your main timeframe to look for opportunities on a specific product and you spot a pullback from a bull run that has the potential of a big reversal, you could confirm the broader move by taking a look at a daily chart to confirm how long the trend has lasted or identify some support and resistance levels in its wider trend. Alternatively, you could hop over to an hourly chart or 30-minute chart and see what is happening on a smaller timeframe.
By doing this, you can also check whether buyers or sellers are in charge during the current trading period.
What you want to avoid doing, though, is adding too many different charts to your analysis and moving between them at random to find opportunities. Instead, stick to a ‘base chart’ that you use to trade, with one or two others for confirming moves.
As you can see in the image above, there are three charts. On the main time frame, a potential reversal signal was spotted, and there may be a possible pullback to the bull run. By looking at both the longer time frame and the shorter time frame to help support the analysis, this will help improve your entry because, for example, if all timeframes clash with each other or show conflicting signals, this may help the trader second guess their original analysis and may decide to wait for clearer confirmation signs on all time frames before deciding to enter the market.
The goal of every trader is to be successful in achieving consistent profits, and entries play a big part in this. You can correctly call the market and still lose money due to bad entries. The more you understand key market levels and have the discipline to wait and trade around them, the more probability you will have of trades going your way. Though it is still possible to lose trades on good entries, trading is a probabilistic outcome with no guarantees, so why would you want to enter at a bad entry price to give yourself a disadvantage in the markets before the trade has even started?
Trade safely and responsibly.
BluetonaFX
Gold Keeps Trading Sideways. Here's Why.In early 2020, following the massive injection of liquidity into the financial markets by the Federal Reserve, many onlookers speculated that the price of gold would go on a massive bull run, comparable to the gold super-cycle we saw in the early 2000's:
In that market, gold went from ~$260 per ounce to more than $1,600 per ounce, a gain of more than 500% over the course of a decade.
This speculation, of course, was founded in the belief that a higher supply of money, as created by the federal reserve in 2020, would lead to devaluation of the dollar against gold, a "hard" asset.
What happened, in retrospect, has been something else altogether. The bull run materialized initially, when gold rallied roughly 40% over just 4 and a half months following the initial pandemic shock:
However, what followed was somewhat of a nothing burger, as gold has remained largely range-bound between $1,600 and $2,100 throughout 2021, 2022, and now more than half of 2023:
This has been a massive disappointment for gold investors, who likely believed that the M2 expansion in 2020 and 2021, followed by the inflation experienced in 2022 and 2023, would set up gold perfectly to outperform the broader market.
(Inflation):
Why has gold languished? Where is it headed? Here's our thoughts.
First - it's important to take a look at the futures curve to get a sense of market expectations:
This chart, provided by the kind folks over at COMEX and visualized right here on TradingView, shows that future expiries of the gold contract, going out over the next 6 years, are pricing in a linear ascent for gold between where it is now, at ~1,950, and $2,200. But is this what the market actually thinks?
No.
This curve is pricing in the expected appreciation over the next 6 years of gold Vs. the dollar -> it's essentially pricing in inflation. That said, it's still useful for getting oriented.
In reality, price discovery of supply and demand is still facilitated by the front month, most liquid contract.
So why has gold languished?
In our view, Bitcoin has played a massive part in stifling gold's potential ascent:
In the chart above, you can hardly make out gold's dramatic increase in 2020, due to the magnitude of Bitcoin's percentage rally.
Given the similarities between the products, and with many viewing Bitcoin as "Digital Gold" (a view which we hold as well), we may very well be seeing the disruption of gold as a financial instrument in the use case it has, up until now, owned exclusively. Time will tell.
In fact, the CME has launched Bitcoin futures - perhaps an omen of this very dynamic.
Bitcoin Futures (Ticker "BTC"):
As for where gold is headed next; we think gold should break higher above 2,100 at some point due to historical inertia and increased demand within broader jewelry and industrial use cases. When does a breakout happen? It's anyone's guess.
However, when that trade emerges, it should be a great opportunity to catch a breakout towards $2,400 & 2,600, the next fib extension levels:
We'll be sure to post about it if and when that happens.
Cheers!
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What Disinflation - Beef Price Went Up 64 percent in 5 YearsCME: Live Cattle ( CME:LE1! ), Lean Hog ( CME:HE1! )
Last month, the Bureau of Labor Statistics (BLS) reported that US inflation on food items was 5.7% in June, exactly half of its peak of 11.4% in August 2022. Food inflation is at its lowest level since November 2021.
Under the sub-category “Meats, poultry, fish, and eggs” from Food-at-home, the BLS data shows a negative 0.2%, meaning that meat prices declined in the past year.
The official data contradicts my own experience. Anyone who has been shopping knows that the grocery bill gets bigger every month. Last weekend, I surveyed the Beef section at a local Walmart and found the following:
• Beef cuts with the USDA Choice label price between $12-$18 per pound.
• A primal loin, for example, costs $16.99/lb.
Next to Beef is the Pork section.
• A full slack of spareribs prices at $1.89/lb.
• This is back to the pre-Covid price level.
Why is beef so pricy? Will consumers get some relief as food inflation goes down? In this report, I attempt to find out what drives the beef/cattle price up.
The Cash Cattle Market
According to the National Daily Cattle & Beef Summary published by the USDA, Choice Beef averaged $301.79/cwt (per 100 pounds) nationwide on August 4th. Primal loin cutouts averaged $4.11/lb. This is so much lower than the retail price. But why?
The USDA reports transactions occurred at meatpackers, where cattle farmers sell their beef cows. The report shows the value chain throughout the packing process:
• Live Cattle: Steer (male cow), 187.55/cwt; Heifer (young female), $187.26/cwt;
• Beef Carcass: $284.86 (Choice);
• Primal Flank: $214.84 (Choice);
• Primal Rib: $457.54 (Choice);
• It also lists prices for Chuck, Round, Brisket, Short Plate, Trimmings, etc.
From the packing plant, beef goes through cold storage, wholesale, and retail distribution before consumers pick up their favorite meat at the grocery store.
During the inflationary period, labor and energy become more costly, driving up the cost of each stage of processing and distribution. Higher interest rates also raise the cost of business overhead. These together widen the price spread between live cattle and retail beef cutout significantly.
In the beef cattle value chain, it takes farmers two years to raise the cows, while processing and distribution take maybe two weeks to complete. However, farmers receive only about 20% of the final sales price.
The Cattle Cycle and A Shrinking Herd
Cattle cycle is the process in which the size of the national cattle herd changes over time, from low point to low point. The cattle cycle averages 8–12 years and is influenced by the cattle prices, input costs that drive producer profitability, the gestation period, the time needed for raising calves to market weight, and climate conditions.
If cattle prices and producer profits are expected to rise, producers may expand their herds; if prices are expected to decline, producers will reduce their herds by culling older cows and keeping fewer heifers to replace older cows.
Cow-calf producers’ response to price fluctuations may be delayed because of the lengthy gestation period for cattle relative to hogs and poultry. The total number of beef cattle in the United States is highly dependent on the stage in the cattle cycle.
Last month, the USDA reported that the latest herd inventory for all cows and calves was 95.9 million, down 3% year-over-year. Beef cow inventory was 29.4 million, also down 3%. The decline in beef cow supply is the main driver for higher beef prices.
Over the past 50 years, the US cattle herd has shrunk significantly.
• Inventory for all cows and calves peaked at 132 million in 1975. We have lost over 36 million cows or 27% of all cattle supply.
• Beef cattle inventory peaked at 45.7 million. We now have 2/3 of peak herd size.
A counter argument is that, with technology advancements, we need fewer cows for the same amount of beef supply. The production time gets shorter, and the cows gets bigger. People now have healthier diets and take in less red meat.
According to USDA data, per capita beef consumption was 63.3 pounds in 1960. It declined to 59.1 pounds in 2021, down 6.6%. But look at the huge population growth for people. The US had 203.2 million people according to the 1970 Census. US population grew to 331.4 million in the 2020 Census, up 63%. Beef demand clearly outpaced supply as US population grows.
Beef Export and Import
Interestingly, the US both exports and imports beef. In 2021, the US exported 3.43 billion pounds of beef while imported 3.35 billion pounds. Beef export was mainly higher-grade beef cutouts. And import was lower-grade beef for processing into ground beef.
The US used to be a net import country for beef. In 2020, China signed a trade agreement with the US and opened its vast market for US beef import. This resulted in China buying four times as much beef the following year.
More export reduces domestic beef supply. This is another factor driving up beef prices.
In conclusion, the days of lower priced beef are long gone. Beef prices are expected to remain high, even though food inflation goes down.
Cattle and Hog Spread Trade – A Revisit
How could we make use of this analysis? On May 15th, I published an idea about a spread trade between CME Live Cattle Futures ( NASDAQ:LE ) and Lean Hog Futures ( NYSE:HE ).
The 20-year chart shows that the price spread between live cattle (LE) and lean hog (HE) broadly stays in the range of $20-$60 per 100 pounds but could go up to as high as $100.
On May 12th, October cattle contract (LEV3) was quoted $166.2 per 100 lbs., while October hog contract (HEV3) priced at $77.425. Thus, the price spread was $88.775.
On August 4th, LEV3 settled at $183.10 while HEV3 was closed at $83.25. The spread has widened to nearly $100.
The Impact of Proposition 12
In 2018, California passed an animal welfare law called Proposition 12. It requires that breeding pigs be confined to a pen with no less than 24 square feet of floor space, allowing them to fully turn around in their living area.
Proposition 12 applies to not only hog farmers in California, but also any supplier selling hog and pork in the state of California. The hog industry fought hard but lost. The Supreme Court upheld the law in May, and it is finally taking effect in July.
The animal welfare law significantly increases the cost of hog production nationwide. Prices of live hog, pork cutout, ham and bacon shall all go up. However, as we are now in summer, a low pork consumption season, cash market price has not yet caught up.
In my opinion, the cost factor pushing pork prices up in the short run is greater than the supply-demand force that drives up beef prices in the long run. There may be room to short the cattle-hog spread, until pork prices stabilize in a new equilibrium.
A Short Spread trade entails selling 1 CME Live Cattle Futures and buying 1 CME Lean Hog Futures. Both contracts are based on 40,000 pounds of meat and require $1,600 in initial margins.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
The Road to $66 for STXUSDT (Stacks)$STXUSD has now beautifully broken out of the triangle after an impressive textbook correction at the 0.618 Fibonacci retracement.
This type of correction is a typical feature of wave 2 in an Elliot wave count, which indicates that $STXUSDT is now ready to embark on its third impulsive wave, often referred to as the most explosive one.
Considering the increasing volume, an explosive surge in the number of transactions on the network, and the oscillators, we can expect a swift development in the price towards the following resistance levels:
— 0.57
— 1.06
— 2.85
— 5.96
— 8.16
— 13.17.
#stxusdt #stxusd #BNS #DeFi #BitcoinNFTs #Stacks
Earn 18% While Waiting To Buy AMD At SupportHey guys! Today, we're looking at a Trade Idea in AMD, the popular semiconductor company that often plays second fiddle to Nvidia (NVDA).
Like most of our trade ideas, this post focuses on selling put options - this time, on AMD shares.
In case you're unfamiliar with options -> when you sell a put option, one of two things happens.
Either;
A.) The stock price finishes above the strike price of the put when the put expires, in which case you make money.
B.) The stock price finishes below the strike price of the put when the put expires, in which case you will be forced to buy the stock at the strike price.
With the trades we publish, if the stock goes up, sideways, or down a bit, you'll make money. If the stock goes down a lot, then you'll be forced to buy shares.
In other words- either make money, or buy the dip!
The trick is finding the right stock at the right time.
Right now, AMD seems like a great candidate for this strategy.
Selling the October 20th, 2023 $105 strike put options yields more than 18% on an annualized basis, and 105 is a decent support zone, as you can see on the chart above. This is also a popular pivot area if you zoom out further:
The stock has also been in a bullish uptrend, and the recent, flat price action is a solid consolidation that should be perfect for selling puts:
But what about fundamentals? All of this means scant little if you're forced to buy a stock that will go down over the long term.
Fortunately, AMD is growing its top-line sales and bottom-line profits at a steady pace on the back of increased demand for semiconductors:
While the company is diluting shareholders somewhat, the valuation, at only 8x sales, seems reasonable when compared with peers and to the company's own multiple historically.
Plus, the trade has a 76% chance of earning max profit by expiry.
Overall, we think selling the October 20th, 2023 $105 strike put options is a great win-win trade for income-seeking traders.
Cheers!
Looking for more high-probability trade ideas? Follow us below. ⬇️⬇️
Centrica - bullish divergence*investment opportunity*
A 90% correction since 2014 and following oversold condition there now exists an excellent opportunity to buy this stock.
The 10-day chart above confirms a regular bullish divergence between price action and the oscillators + higher low in price action. This is the start of a trend reversal. Price action is now in the bullish half of the Bollinger band as the mouth is constricting, which suggests a big move is coming.
On the fundamentals Centrica engages in the provision of energy and supply services. There is no end of ‘bad news’ stories on the business. Pay no attention. The only news you need is the headlines in the charts, and they look amazing.
A buy above 42 is good. 1st target 115
2-month chart - broken RSI resistance following oversold condition:
3-month chart - bullish morning star + confirmation
How To Add Indicators & Financials To Your ChartIn this Tradingview tutorial video, we take a look at how to add indicators & financials to your chart.
We'll discuss how to access them, where you can go to learn more about the specific indicator/financial & what you can do in order to customize there appearance and/or location on your chart.
If you have any questions please leave them below & I promise that I'll respond.
See you guys next video!
Akil
5 Best Momentum Indicators for TradingWant to master the art of momentum trading? Look no further. In this FXOpen guide, we’ll explore how to use momentum indicators, the signals they generate, and five of the best momentum indicators for trading.
What Is a Momentum Indicator?
Momentum indicators are technical analysis tools that help traders gauge the force behind and direction of trends. These indicators can show traders optimal entry and exit points and provide valuable insight into whether a trend is likely to continue or reverse.
While there are many ways to represent momentum in technical analysis, all momentum indicators analyse an asset’s price movement and the speed of that movement. They are called momentum indicators because they measure the force behind price moves, similar to how we calculate speed and momentum in physics.
Types of Momentum Indicators
Momentum indicators can be categorised into three main types based on the price movements they focus on.
Closing Price Compared to the Previous Close
Indicators in this category compare the closing price of an asset to its previous closing price, which can help traders identify markets that are potentially overbought or oversold. These types of leading momentum indicators can be beneficial for short-term trading strategies since they can pinpoint areas that may lead to quick reversals. Examples here include the relative strength index (RSI) and Momentum.
Closing Price Compared to Range
This type of indicator compares an asset’s current price action to how it behaved over a specified period, typically accounting for highs, lows, opens, and closes. This period could be a set number of candles or a single candle. These indicators gauge market strength and can help traders identify potential reversals, trends, and breakouts. Examples are the average directional index (ADX) and the commodity channel index (CCI).
Closing Price Compared to Moving Average
Lastly, these indicators can show traders how fast or slow price action is moving relative to its moving average(s). Because they rely on moving averages, these indicators are considered lagging and often used to confirm trends and reversals. One of the most notable examples is the moving average convergence divergence (MACD) indicator.
The Significance of Momentum Technical Indicators
Momentum indicators play a crucial role in providing insights into the strength, direction, and potential reversal points of market trends. They’re able to quantify and represent hidden clues about the future market direction in an easily interpretable way. By learning how to read momentum indicators, traders can develop more effective trading strategies, identify potential profit opportunities, and manage risk more efficiently.
Momentum indicators produce a range of signals that offer traders an edge over the markets. Let’s take a look at some of the most common momentum signals.
Overbought and Oversold Signals
These signals indicate when an asset's price has moved too far in one direction and is likely to reverse. For example, RSI generates overbought signals when the reading rises above 70 and signals oversold conditions when the reading falls below 30.
Divergence Signals
Divergence signals occur when the price of an asset moves in the opposite direction of the momentum indicator, suggesting that the current trend may be weakening. For instance, when the price is making higher highs, but RSI is making lower highs, this indicates a bearish divergence that increases the likelihood of a downward move.
Crossover Signals
These signals are generated when the indicator's lines cross each other or cross a certain threshold. A common example is in the MACD, where traders look for crossovers between the fast MACD line and the slower signal line to spot potential entry and exit points.
Top Five List of Momentum Indicators for Technical Analysis
Now that we understand the types of signals that momentum indicators produce, let’s break down five of the most popular indicators. If you’d like to experiment with them yourself, you’ll find each indicator waiting for you in the free TickTrader platform.
1. Relative Strength Index (RSI)
The RSI is one of the most popular and well-documented momentum indicators. It measures the speed and change of price movements by comparing the average gain to the average loss over a specified period, usually 14.
RSI is an oscillator, moving between 0 and 100. Values above 70 are considered overbought, while values below 30 indicate oversold conditions. When the RSI moves out of overbought or oversold territory, many traders interpret this as a reversal confirmation. Sustained movements above or below the midpoint (50) can also be used to confirm a bullish or bearish trend, respectively. Moreover, traders look for divergence between the RSI and price to identify weakening trends and possible reversals.
2. Average Directional Index (ADX)
The ADX is a momentum indicator used to determine a trend’s strength. Unlike most other momentum indicators, its reading doesn’t move according to the direction of price action, i.e. it doesn’t move up if bullish or down when bearish. Instead, it ranges from 0 to 100, with values above 25 indicating a strong trend and below 20 suggesting a weak or non-trending market.
The formula for ADX is relatively complicated, taking an average of the negative directional indicator (-DI) and positive directional indicator (+DI). These lines compare the current highs and lows to the previous highs and lows, smoothed and divided by the average true range (ATR).
ADX is commonly used in combination with other indicators, as it simply confirms the trendiness of a market. For example, traders might use a leading indicator like RSI to anticipate bullishness and confirm the trend when ADX crosses over 25.
3. Commodity Channel Index (CCI)
The CCI is a versatile momentum indicator that measures an asset's price deviation from its average price, relative to its mean deviation. It uses a constant in its calculation to ensure that 75% of values fall between +/- 100, with moves outside of the range generally indicating a trend breakout or continuation. It can also show extreme overbought or oversold conditions when its value exceeds +/- 200.
The CCI requires a more nuanced approach than other indicators and is typically used as a tool to confirm a trader’s directional bias and to identify potential ‘buy the dip’ opportunities. For instance, a visually identifiable bullish trend can be confirmed by looking at the CCI. If its value is skewed toward 100+, traders can be confident in their observation. When the market cools off, CCI will fall below 100. Traders can then confirm a pullback entry with a move back into the +/- 100 range.
4. Moving Average Convergence Divergence (MACD)
The MACD is a highly regarded trend-following momentum indicator that shows the relationship between two moving averages of an asset's price. It subtracts a longer exponential moving average (EMA) – usually 26 periods – from a shorter EMA – typically 12 periods – to produce the MACD line. It then uses a 9-period EMA of the MACD line to plot the signal line. MACD also commonly features a histogram that shows the distance between the MACD and signal lines.
Traders use crossovers between the MACD and signal lines as potential entry and exit signals. Additionally, when the MACD histogram crosses above or below the zero line, it can indicate bullish or bearish momentum in the market. Lastly, it’s also possible to spot divergences between price and the indicator’s peaks and troughs, similar to how divergences are identified with RSI.
5. Momentum
The Momentum indicator is a simple yet effective tool that measures the rate of change in an asset's price over a specific period. It compares the current closing price to the closing price a specified period ago (usually 14 or 30). The value of the Momentum depends on the market it’s applied to. For example, using the Momentum indicator in stocks will result in a fluctuating value typically between +/- 20, depending on the stock’s price. For forex pairs, its range may look more like +/- 0.02.
The common feature across all markets, however, is the zero line. Generally speaking, positive Momentum values indicate upward price movement, while negative values suggest downward movement. It can also show overbought and oversold conditions, but its lack of defined boundaries means this can be tricky. However, Momentum is especially useful for identifying divergences.
Things to Consider When Trading Momentum Indicators
While momentum indicators can be an effective addition to any trader’s arsenal, there are a few things to be aware of that can increase your chances of success.
Trade with the Trend: Trends often last longer than you may think, and constantly looking for trend reversals will only end in frustration. Look for bullish signals during an uptrend and bearish signals in a downtrend.
Use Multiple Indicators: Relying on a single indicator can lead to false signals. Many traders find success by combining a lagging indicator, like MACD, with a leading indicator, like RSI. Combining two or three indicators can help confirm signals and improve your accuracy.
Beware of False Signals: Momentum indicators can sometimes generate false signals, especially in sideways or choppy markets. Being patient and waiting for an ideal setup before entering a trade is vital.
Relying Too Heavily on Indicators: While momentum indicators can be helpful, relying solely on them without considering price action, market structure, or other technical aspects can lead to poor trading decisions. Use these indicators alongside other tools for a higher probability momentum indicator strategy.
Final Thoughts
Now that you have a comprehensive overview of momentum indicators and the signals they produce, it’s time to put your knowledge into practice. After experimenting with a few indicators and settling on your favourites, you can open an FXOpen account. You’ll be able to trade over 600+ markets with low costs and ultra-fast execution speeds while partnering with one of the world’s fastest-growing forex brokers. Good luck!
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
The 4 Tips Often Overlooked by BeginnersGreetings, esteemed members of the @TradingView community and all Vesties out there!
Let's explore four timeless pieces of advice that beginners tend to overlook and why we should give them closer attention.
1. Manage your expectations.
Some newcomers fall into the trap of unrealistic expectations, drawn in by "get rich quick" schemes that initially sparked their interest in trading.
Beginner traders may anticipate similar returns to those promised in trendy strategies or TikTok videos, often without fully grasping the methods to achieve those profits.
Consistently profitable traders understand that success in trading requires more than just blindly following "profitable" traders on social media.
It takes time, discipline, and dedication to develop a trading system that suits your personality and the ability to adapt it to varying market conditions.
2. Simplicity is key.
Discovering a multitude of user-friendly education websites (with none better than TradingView, of course) can be enticing, especially when they offer a variety of indicators and trading systems.
Novice traders may find comfort in using fancy indicators and systems, ones that seem to be favored by the "pros," but without proper testing or practice, these technical tools can lead to mixed signals and confusion.
A wise approach is to start with price action and gradually incorporate indicators as you become more comfortable with their functionality.
3. Prioritize risk management.
Both beginners and experienced traders might envy those who achieve substantial gains, often overlooking the complexities behind their success.
While certain trading techniques can yield significant profits, they also carry the risk of wiping out an account in an instant.
Remember, even a good trade idea can turn sour if risk and trade management are neglected.
Proper risk management is crucial for maintaining longevity in the trading game and acquiring the skills needed to become consistently profitable.
4. Stick to your plan.
Trading novices are particularly susceptible to the psychological stresses of the market. Without trading confidence, they are more likely to deviate from their trading plans, even if the odds seem favorable.
Consistency is key in this aspect. After all, what you don't measure, you can't manage or improve upon. Without consistency:
• The trader won't learn how to adapt their system to changing market conditions.
• The trader won't cultivate the right mindset to handle losses, stay focused, and prevent emotional reactions.
• Inconsistent execution can skew the system's expected outcomes, leading to potentially worse results.
Don't hesitate to seek help and learn from a community of traders to avoid repeating the mistakes made by those who have walked your path before.
We would greatly appreciate your feedback on the article! Please feel free to share your thoughts and opinions in the comments section below.
What's the Best Trading Advice You've Ever Heard?In the comments below, share the best trading advice that you've ever heard. This could be an intelligent quote you heard or read. It could also be a piece of advice given to you by a family member or friend.
Let's create a collection together!
We'll also be gifting exclusive and limited edition TradingView shirts to 5 lucky comments! Please keep in mind that these shirts are only for members based in the US or Canada. If you're from another country, and you're randomly selected, we'll gift you some TradingView Coins.
We look forward to reading all the comments below 🔥
Pre-Earnings Run in $UPSTNASDAQ:UPST has been running up speculatively after completing its bottom. It has mostly retail groups and smaller funds holding so that is why the stock has up and down days in an irrational trend pattern often. HFTs are in the mix regularly inspiring the speculation.
The company reports Monday of next week. Looks like Pro Traders used a swing trading earnings strategy and some took profits ahead of the report.
The stock has a low percentage of the shares held by institutions, so emotional trading candlestick patterns are problematic at times. It's important to buy and sell with the Pro Trader patterns in speculative stocks.
PayPal 79% down from ATH!! Under massive discount??I do not do manual analysis on anything. Instead, I develop methods to do the analysis. This way, we can be free from bias, and we measure things objectively.
Having said that, purely statistics based analysis does not take into consideration recent news events and other economical or political impacts on the company.
I developed this method to measure the discounted price probability of stocks based on its historical values of fundamentals and prices. Here is a summary of what is happening with PayPal!!
Price down 79% from peak. This is also 98% discount if you consider drawdown of prices from ATH
Most of the fundamentals are almost at all-time high. Exception is cashflow - that is in the negative territory
Profit and operating margins are down slightly compared to its ATH
Returns in comparison to capital, earning and assets are near ATH
Debts have significantly increased
Though the algorithm says probability of being discounted is pretty high, it takes all aspects into consideration and gives equal weightage. Will the significant increase in debt play a major role in the reduction of value, considering the increasing interest rates?
Europe (VGK) slides right as folks head on holidayThe Vanguard FTSE Europe ETF (VGK) was an early-year relative winner as foreign equities generally outperformed the US stock market. Then came the March pullback which brought about a risk-off environment and flight to the dollar - both factor hurting relative returns of VGK. Even with a notable retreat in the greenback and a gradual shift favoring cyclical and small caps in late May through July, VGK did not perform all that well on a relative basis to the SPX.
Nevertheless, the Financials, Industrials, and Health Care-heavy fund managed to claw its way toward 52-week highs by late last month. The first two trading sessions of August - a noted time when much of the continent's populous is on vacation - have featured a downside price action on high volume. Moreover, a bullish false breakdown in the dollar only adds to technical and intermarket headwinds for VGK here.
I see support in the $59 to $60 zone while $64 is obvious resistance. A bigger Q3 pullback, always wont to occur, could lead to a target toward the mid- FWB:50S (that would be a material 14% correction).
