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Hedging Price Risk in Silver in a Pivotal Week This is a big week for financial markets, a long-anticipated election in the US is likely to have widely varying impacts across major asset classes. Safe haven assets such as silver stand to benefit from the uncertainty. There is also an FOMC meeting scheduled on 7/Nov (Thu) where the Fed is widely expected to cut rates by 25 basis points. A lower rate environment also serves as tailwind for silver. Finally, the Chinese parliament is expected to announce details of fiscal stimulus on 8/Nov (Fri). Fiscal stimulus in China also stands to benefit silver through higher investment demand as well as industrial demand. In what should fundamentally be a strong week for silver, prices have entered the week on a bearish note following a 3.4% decline last week. While fundamental outlook for Silver remains bullish, this eventful week may drive unwanted volatility. Indeed markets are expecting large moves in silver prices with silver options IV near a 1-year high. Source: CME Group CVOL Investors can strategically deploy CME silver weekly options along with a long position in silver to capitalize on the fundamental increase while remaining protected against volatility. BULLISH FUNDAMENTAL OUTLOOK FOR SILVER Mint Finance covered some of silver’s bullish fundamental drivers in a previous paper . In brief, robust growth from the photovoltaic (PV) sector is driving high demand. PV installations are surging, with global solar installations up 29% year-over-year, driven by aggressive climate policies and energy transition goals. This increase has directly boosted silver consumption, essential for PV production. At the same time, silver markets have stayed in a supply deficit for the past four years. Silver miners have struggled to keep pace with the rapidly increasing industrial demand. China’s massive stimulus package—its largest since the pandemic—also plays a crucial role, freeing up liquidity to revitalize its struggling economy. This stimulus supports sectors like PV and electronics, key industries for silver usage, while bolstering consumer confidence, which translates into heightened demand for silver in electronics and jewellery. Investment demand for silver has started to pick up pace. Since July, U.S.-listed silver ETFs have seen over $942 million in inflows, particularly after the Fed’s rate cuts, which makes non-yielding assets like silver more attractive. HIGHER SILVER JEWELLERY DEMAND IN INDIA The recent festival season in India saw high demand for silver as buyers opted for it over gold. Silver sales by volume are expected to have increased 30-35% YoY while gold sales fell by 15% according to data from the Indian Bullion & Jewellers Association. Rising investor interest in silver is partly due to its relative affordability compared to gold, which is trading at an all-time high. While high gold prices are dampening demand, especially for physical gold and jewellery, silver remains more accessible, supporting increased investment. Rising investment demand, particularly for jewellery, risks pushing silver further into deficit. While jewellery demand for silver had been modest in recent years, 2022 saw a significant increase. According to the Silver Institute, jewellery demand is projected to grow by 4% in 2024 (but below 2022 levels), with actual demand potentially exceeding this due to the strong seasonal trend. Increased demand would further tighten silver supplies, likely driving prices higher over the next year. UPCOMING FOMC MEETING AND CHINA STIMULUS TO DRIVE SENTIMENT China’s parliament has started it five-day meeting on 4/Nov (Mon) and is expected to announce the details of the fiscal support on 8/Nov (Fri). Analysts suggest the fiscal plan could reach 10 trillion yuan ($1.4 trillion), with most funds likely allocated to refinancing local government debt. A substantial fiscal stimulus plan is likely to support silver prices. Recent economic data from China has also shown a recovering industrial sector as China’s manufacturing PMI rose from 49.8 to 50.1 in Oct as the manufacturing sector shifted into expansion after 5 months of contraction. In case the trend continues, stronger industrial demand also stands to push silver prices higher. SILVER IN THE MIDST OF CORRECTION DURING UPTREND Silver continued its bullish momentum from September into October but has corrected sharply over the past week. During the rally earlier this year, when silver prices corrected, they were able to find support at the 38.2% and 61.8% Fibonacci levels. With Silver presently just above the 38.2% level, it may find support here. Silver’s performance in the past two months has closely aligned with monthly pivot points. In both September and October, prices tested these pivot levels before moving higher. However, recent tests have shown smaller deviations from the pivot compared to prior months, suggesting that volatility could push prices slightly lower during this month’s test. There is strong reason to believe that the general bullish trend is likely to continue into next year. According to a poll at the LBMA precious metal conference, delegates expect silver prices to rise to USD 45/oz over 2025, reflecting a 37% increase from present levels. Precious metal analysts were highly optimistic about silver, stating that higher industrial demand combined with continued supply deficit was likely to drive strong gains. SEASONALITY SUGGESTS POTENTIAL FOR LARGE GAINS IN NOVEMBER Silver prices closed out October with a 4.6% increase but are currently nearly flat for November. Historically, November has been a mixed month for silver, with an average price increase of 1.88% since 2000, though with high standard deviation. Notably, only 42% of Novembers have shown positive gains. Despite this variability, past performance shows periods where silver either consistently declined or consistently rallied over multiple Novembers. Over the last two years, November has seen significant growth in silver prices; if this recent trend persists, silver could experience strong gains this month. SILVER’S PERFORMANCE AROUND ELECTIONS Certain safe haven and risk assets (gold, silver, BTC) stand to benefit from a Trump presidency. Historically, elections have impacted silver prices in varying ways. Following the Trump victory, silver stands to benefit. Looking at silver’s historical performance in the two weeks following elections since 1980, prices increased by an average of 0.7% when a Republican replaced a Democrat president. The Democrat-to-Republican shift has led to price rallies in two-thirds of cases. SILVER’S PERFORMANCE AROUND FOMC MEETINGS As mentioned, lower rates have a positive impact on non-yielding investment assets such as silver while also boosting industrial demand during periods with loose monetary policy. During the Fed easing cycles in 2001, 2007, and 2019, silver reacted positively to Fed rate cuts in 68% of cases (performance measured 1 week after FOMC meeting with monetary easing) with an average of 0.9% appreciation on the CME Silver front month contract. Source: CME FedWatch CME FedWatch tool is suggesting that a 25-basis point rate cut is most likely at the upcoming meeting on 7/Nov with a probability of 98%. As the outcome is largely anticipated, the impact of the meeting on silver prices may be minimal. HYPOTHETICAL TRADE SETUP Silver remains bullish with strong fundamental drivers including the rapid growth in the PV industry and strong investment demand. This week, several major events are expected to drive significant volatility in the silver market. While these events are generally anticipated to boost silver demand, prices may remain unstable and could see short-term declines. Silver is currently trading near its support levels, but increased event-driven volatility this week could lead to significant price swings. In late October, for example, silver briefly surged nearly 4% above usual resistance levels during short bursts of volatility. Although trading volume remained concentrated near the support level, the risk of sudden, sharp moves remains. This could result in a long silver position being prematurely closed out. With a long position in silver futures at risk from near-term event risks, investors can deploy CME weekly options to hedge a long position from near-term volatility which increases tail risk. In the following hypothetical trade setup, investors can combine a long position in CME micro silver futures expiring in December (SILZ4) at an entry of 32 with a protective put using CME silver weekly options expiring on 8/Nov (Fri) (SO2X4) at a strike level of 31 (delta 20, premium of 0.087/oz or USD 435) offers a compelling trade setup while remaining hedged against near-term volatility. Using a delta-20 put option keeps the position fully delta-hedged for the week, as the delta of the long micro silver position aligns with the option’s delta at 20. Since each micro silver contract is one-fifth the size of a full contract, this setup effectively maintains the hedge. In case prices dip below 30.64 by Friday due to volatility from the election, FOMC meeting, and China parliamentary meeting, the put option would offset any losses from the futures leg. In the later part of the month, the outlook for silver is likely to be bullish given the fundamental factors highlighted above, in case prices rise, the position would become profitable above 32.44, offsetting the premium paid for the short-term option. The scenarios in which the position loses: 1) In case prices remain between 30.64 and 32.44 2) In case prices fall below 30.64 following the put option expiry on 8/Nov The scenarios in which the position profits: 1) In case prices fall below 30.64 before the put option expiry on 8/Nov 2) In case prices rise above 32.44 at any point It should be noted that it would be prudent to set a stop loss on the long futures position following options expiry at 31 to minimize losses in case of a decline after options expiry. 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 tradingview.com/cme . 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.
COMEX_MINI:SIL1!Long
by mintdotfinance
SPY falls out of its channel on geopolitical risk SHORTSPY on the 2H chart shows the past six months of trend. SPY has been in an ascending channel but fall out of the channel. Iran's ambition to retliate against Israel and the movement of US NAVY warships into the the Middle East raises concerrn as does "sticky inflation" and early earnings reports from big banks. On the chart, trend angle analysis suggests the SPY may be topping or correcting its ascend. The shorter VWAP line are more flat than the longest VWAP line. I see this as impetus to further implement my hedging strategy with conviction and discipline. I can easily appreciate that SPY could pullback to 490 ( the middle anchored VWAP line) and easily could pullback into 465 as a standard Fibonacci retracement. Obviously fundamentals can trump technicals. Geopolitical risk is significant can easily trump both of them. I find good cause to hedge with inverses of ETFs of the indices and inverse ETFs for technical stocks, and perhaps banks, financial stocks and bonds as a means to buffer any fall my long positions moving forward.
AMEX:SPYShort
by AwesomeAvani
Storms are Brewing: Is your Portfolio Weatherproof? Risk strikes when least expected. Optimism peaks before a downturn strikes. Chart below shows remarkable spike in articles mentioning soft-landing before recession hits. Human brain is engineered to think linearly. Anything non-linear tricks the mind. Recession is non-linear which muddles up investor estimates of recession, its timing and impact. Count of Soft-landing Articles & US Recession (Source: Bloomberg ) The US Federal Reserve in its fight against inflation has lifted rates by an unprecedented 525 basis points since the start of 2022. Yet the American economy, US corporations, and the US consumer are remarkably resilient. Non-Farm Payrolls last week came strong. When the Fed is tightening its levers to slow the economy, nothing seems to stop its rise. What explains this anomaly? Three words. Monetary Policy Transmission. Monetary policy transmission takes time, lulling many to believe that consumers and corporates are resilient. When in fact, they are yet to face the consequence of constrained credit markets which will manifest itself in myriad ways from reduced availability of financing, high cost of funding, and rising bankruptcies, just to name a few. This paper is set in two parts. First part describes monetary policy transmission. Part two dives into storms forming in the horizon. The paper concludes with a hypothetical trade set-up using CME Micro S&P 500 Options to defend portfolios from deepening polycrisis. Despite the risk narratives, a soft landing may still be possible. However, the combined impact of Fed’s hawkish stance, rising geopolitical tensions, continuing auto workers strike, tightening of financial conditions, and elevated oil prices & yields renders the likelihood of a soft landing, super slim. Narratives around the soft-landing aside, CTAs have dumped nearly USD 40 billion worth of S&P 500 futures positions marking the fastest unwind on record over the last two weeks as reported by Goldman Sachs. PART 1: MONETARY POLICY TRANSMISSION Monetary policy operates with long and unpredictable lags. Monetary Policy Transmission is the process through which a Central Bank’s decisions impact the economy and the price levels. The flow chart below schematically describes the downstream impact of quantitative tightening. Monetary Policy Transmission Takes Time (Source: ECB ) Changes made to official interest rates affect markets in diverse ways and at distinct stages. Central bank's interest rate decisions impact the markets in the following seven ways: 1. Banks and Money Markets: Rate changes directly affect money-market rates and, indirectly, lending and deposit rates. 2. Expectations: Expectations of future rate changes influence medium and long-term interest rates. Monetary policy guides expectations of future inflation. 3. Asset Prices: Financing conditions and market expectations triggered by monetary policy cause adjustments in asset prices and the FX rates. 4. Savings & investment decisions : Rate changes affect saving and investment decisions of households and firms. 5. Credit Supply: Higher rates increase the risk of borrower default. Banks scale back on lending to households and firms. This may also reduce consumption and investment. 6. Aggregate demand & prices: Changes in consumption and investment will change the level of domestic demand for goods and services relative to domestic supply. 7. Supply of bank loans: Changes in policy rates affect banks’ marginal cost for obtaining external finance differently, depending on the level of a bank’s own resources/capital. The mechanism is characterized by long, variable, and indefinite time lags. As a result, it is difficult to predict the precise timing of monetary policy actions on economy and inflation. For some sectors, monetary policy transmission can take as long as 18 to 24 months. In other words, the full force of the Fed’s 525 basis points spike since 2022 will not be felt until early 2024. Added to that, the Fed may not be done hiking yet. Probabilities of Rate Anticipation in Prospective Fed Meetings (Source: CME FedWatch Tool ) PART 2: STORMS ARE FORMING Not one but three major storms are brewing in parallel, namely (1) Worsening Geo-politics, (2) US Sovereign Risk Fears, and (3) Tightening Financial Conditions. One or more of them could unleash havoc, sending financial markets into a tailspin. 1. WORSENING GEO-POLITICS Adding to the geopolitical conflict between Russia and Ukraine, Hamas attack on Israel over the weekend has elevated geo-political tensions. If counter strikes escalate to a wider region impacting Strait of Hormuz, then oil prices could spiral up sharply, sending shocks across financial markets. Oil prices lost steam last week. That doesn’t guarantee lower prices. Eerily, this month marks 50-year anniversary of oil emergency in 1973 which led to oil prices spiking 3x back then. The US Strategic Petroleum Reserves are at a 40-year low. The reserves are at 17-days of consumption compared to an average of 34-days consumption observed over the last thirty years. 2. US SOVEREIGN RISK FEARS: The US government is facing multiple challenges of its own. The government narrowly avoided a shutdown and has kicked the problem can down the road only by six weeks. Long before investors take relief, the shutdown fear will resurface again. Add to that is the rising US debt levels. With a debt burden of USD 33 trillion, the government debt is forecasted to reach USD 52 trillion by 2033. With rates remaining elevated, a substantial chunk of US Government debt will be directed towards interest payments. Is there a risk of US debt default? To compensate for that risk, bond yields are climbing. The 10-Year treasury yields rose to 16-year high of 4.6%. With jobs market remaining solid, the data-driven Fed might have to keep the rates higher for longer. The futures market implies a probability of 42% for a rate hike during the Fed’s December meeting. Any further hikes can tip the recovering housing market back into crisis due to exorbitant mortgage rates. High yields also cost it dearly for firms to borrow. 3. TIGHTENING FINANCIAL CONDITIONS: Dwindling liquid assets, resumption of student loan repayments, stringent lending practices atop heavy debt burden on US Corporates are collectively weighing down on investor sentiments. Student Loan Repayments: After 3.5 years of loan servicing holidays, millions of students will resume student loan repayments. Bloomberg estimates that these repayments can shave 0.2% to 0.3% off US GDP. Depleted Savings: Strength of the US Consumers will be put to stress tests. Extra savings from pandemic stimulus checks have been depleted to below pre-pandemic levels for low-income categories. Consumer strength could turn into weakness in the coming weeks. Inflation Adjusted Liquid Asset Holdings by Income Group (Source: US Fed and Bloomberg Calculations ) Stringent Lending Standards: The Fed’s Senior Loan Officer Opinion Survey (SLOOS) on Bank Lending Practices points to 50% of the banks imposing stringent criteria for commercial & industrial loans. Lending conditions are at levels last seen during 2008 global financial crisis. Impact of this will be felt in Q4 when business will be stifled from access to funds. Tightening Standards of Commercial & Industrial Loans (Source: July 2023 SLOOS Survey ) Corporate Debt Burden: Years of extremely low cost of funding have tempted US corporates into a debt binge. With rates rising, the debt burden is getting heavier on corporate balance sheets, cash flows, and profitability as reported by Bloomberg. Leverage ratios are rising. Interest coverage ratios are falling. Average Free Cash Flow to Debt ratios are plunging. Debt burden amid rising rate environment is hurting US Blue Chips (Source: Bloomberg Intelligence ) HYPOTHETICAL TRADE SETUP Against the backdrop of these risks, this paper posits a hypothetical back spread with puts to gain from sharp index moves. Unlike a long straddle, this option strategy delivers (a) outsized gains when markets plunge, and (b) limited downside risk if market remains flat or rises despite the risks. This strategy involves selling one unit of at-the-money puts to finance purchase of two units of out-of-the-money puts. This strategy can be executed either for net positive premium or net negative premium depending on the choice of strikes. Specifically, the hypothetical trade illustration is built around CME Micro Monthly S&P 500 Options expiring on 29th December 2023 (EXZ3). The strategy involves (a) selling 1 lot of EXZ3 at a strike of 4400 collecting a premium of USD 655 (131.16 index points x 1 lot x USD 5/index point), and (b) buying 2 lots of EXZ3 at a strike of 4300 paying a premium of USD 950 (95.041 index points x 2 lots x USD 5/index point). The hypothetical trade involves a net debit of USD 295 (58.922 index points * USD 5/index point). This trade breaks even when S&P 500 (a) falls below 4141, or (b) rises above 4400. Pay-off from Back Spread with Puts Trade Strategy (Source: CME QuikStrike ) Summary pay-off from this trading strategy is illustrated in the table below. 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.
CME_MINI:MES1!Short
by mintdotfinance
18
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.
NYMEX:CL1!Education
by mintdotfinance
6
AMRS Options Strategy with downside protectionMultinational biotech company Amyris manufactures and sells synthetic ingredients to the clean beauty, personal care, health and wellness, flavor and fragrance, nutrition, food and beverage markets in Europe, North America, South America, and Asia. It also offers products under the Biossance, Purecane, Costa Brazil, OLIKA, and JVN brand names. Amyris also collaborated with the Infectious Disease Research Institute to develop a COVID-19 vaccine using their synthetic squalene, otherwise found naturally in sharks. As global demand increases beyond natural supplies, the company believes that synthetic ingredients are the sustainable way to go. TA-minded traders might also see some pretty bullish patterns forming (falling wedge, double bottom, even Elliot Wave on the shorter timeframes). However, with Microsoft earnings leading a drop in the stock market today, how can investors balance fear and fear of missing out? Here's a hedged #options strategy that makes a fixed 10% yield (26% annualized yield) unless $AMRS falls more than 69% to below $0.50. More downside protection: Start to lose only if AMRS falls by more than 71% to below $0.46 as of 6/16/23. Sell 5 $0.50 puts Expiring 6/16/23 Capital required: $229
ALong
by oliveinvest
GM Long Options StrategyHeritage brands are making a comeback, as if they ever really went away. General Motors makes Buicks, Cadillacs, Chevrolets, GMCs as well as vehicles under the Holden, Baojun, and Wuling brands. Known for being reliable, they are a go-to for automotive-dependent businesses such as daily rental car companies, commercial fleet customers, leasing companies, and governments. Even though Detroit-based GM is more than a century old (founded in 1908), their newest offerings include safety and security services, automatic crash response, roadside/crisis/emergency assistance, navigation, remote control applications. They are also developing self-driving technology, and a highly anticipated electric pickup truck. Other areas of business are vehicle financing (through GM Financial) and subscription services in their app ecosystem. They also re-instated dividend payouts last year, adding to investor interest. Technically, it has a couple of indicators going for it: a bullish flag, double bottom, some previous consolidation into a falling wedge. But that gap down... a good dip or a harbinger? And how to navigate this choppy stock market? This protective options strategy makes up to 18% (12% annualized) and allows GM stock price to fall up to 22% (to below $27.98) before you start to lose any money. Buy 1 $35 call Sell 1 $40 call Sell 1 $28 put All expiring 6/21/24 Capital required: $2798
NYSE:GMLong
by oliveinvest
Hedged Options Strategy on APAOil is one of the few sectors that analysts are still bullish on in 2023. Long arguments include catalysts such as China's re-opening, airlines recovering, and lowered supply leading to higher oil prices. APA Corporation, formerly known as Apache, operates in the US, Egypt and the UK and is one of the largest American explorers for oil and gas properties. It owns entire lines of production from gathering to transport with four pipelines running from the Permian to the Gulf Coast, as well as 2.3 billion barrels of oil reserves. Positive earnings reports exceeded expectations, and with a recent drop in stock price, this could be a good time to enter. Dividend stocks are popular in bearish times, and APA pays a consistent one, though not the highest at ~2.3%. Elliot Wave traders will also note where APA is going in the pattern, though yesterday's doom-and-gloom market might make investors think twice about jumping in. For downside protection, this hedged options strategy could make up to 9% (17% annualized) in ~7 months while cushioning against a fall of up to 31% (to below $29.85) as of 7/21/23. Buy 1 $42.50 call Sell 1 $45 call Sell 1 $30 put 7/21/23 Capital Required: $2985
NASDAQ:APALong
by oliveinvest
FL Hedged Options StrategyEveryone knows Foot Locker. While athletic footwear sales were down during the pandemic, they're back with a vengeance as work-from-home and the athleisure aesthetic have only grown in popularity (estimated to be a $77 billion business by 2025.) To consumers, sneakers hit many of these elements: practical necessity, recreation and exercise, personal style, luxury fashion, status symbol, political statement. "Sneakerheads" will wait hours in line for new shoe releases and Foot Locker is positioned as the top destination for launch parties. It also partners with official sports teams to sell licensed merchandise, and recently acquired Tokyo-based specialty footwear store Atmos as well as Warehouse Shoes (WSS). New CEO Mary Dillon has also promised to help the company grow its e-commerce division, something she did for Ulta quite successfully. Technically, it looks like a rising wedge is forming... but how can investors be certain share prices will fall with so much talk of a Santa Claus rally into the holiday season and stocks rising from the Fed's confirmation of a gentler rate hike this week? Here's an example of a hedged options strategy that can make up to 17% -- capped at slightly above the top of the rising wedge. In exchange, it allows FL room to fall up to 38% before losing any of the investment. Buy 1 $35 call Sell 1 $42.5 call Sell 2 $22.5 puts Exp 1/19/24 Capital requirement: $4473
NYSE:FLLong
by oliveinvest
AVDL hedged options strategyDublin-headquartered biopharmaceutical company Avadel Pharmaceuticals currently has a buzzy formulation of sodium oxybate in a Phase 3 clinical trial for the treatment of narcolepsy, among other candidates. The current twice-nightly U.S. narcolepsy oxybate market is estimated at $1.8 billion -- up to half of those patients quit because they need to wake up in the middle of the night to take the second dose. AVDL's LUMRYZ, taken once before bedtime and offering much more ease of use, was recently granted tentative approval by the FDA. Speculatively, in an era where melatonin use and sleep studies are so common, specialized research in sleep disorders and cataplexy may also lead to other medical breakthroughs. Looking at the last wick on the weekly chart, the bulls seem to want to push the stock up. Will the uptrend continue? According to its profile on Yahoo Finance, it's a Strong Buy. Here's a hedged options trading strategy that makes up to 38% (33% annualized) on AVDL and also protects from a price drop of up to 44% as of 1/19/24. Buy 2 $7.50 call Sell 2 $10 call Sell 3 $5 put Exp 1/19/24 Capital required: $1450
NASDAQ:AVDLLong
by oliveinvest
BLNK Hedged Options StrategyEVs and infrastructure-related businesses such are "charging" ahead. Blink, having experienced a bit of a downturn with other EV and EV-economy companies, still garnered buy/hold/maintain ratings from analysts. With a market cap of 561M, the company offers residential and commercial EV charging equipment, hardware, and software on its cloud-based Blink Network that enables the remote management of charging stations and gives drivers station information. Blink also has partnered with different destinations such as attractions, airports, transportation hubs, schools and healthcare facilities, hotels, apartment buildings, parks, religious institutions, retailers, stadiums, supermarkets, and office locations. As of 2022, it has ~30,000 charging ports and its revenue of $9.8 million in Q1 was 339% of the same quarter last year -- note that government grants and subsidies are a main source of funding for EV charging companies, while other companies may feel more QT stress. With a one-year target price of $17-$25 and hinting at consolidation, here's a strategy to make up to 20% while allowing room to safely fall up to 78% before losing any money. Buy 2 $13 Calls Sell 2 $15 Calls Sell 7 $3 Puts All expiring 1/19/24 Capital requirement for this strategy: $2078
NASDAQ:BLNKLong
by oliveinvest
Long Options Strategy on EWZElections in Brazil have more or less settled down, and so has the initial volatility following results. While there is still some pessimism about President Luiz Inacio Lula da Silva's victory and consequent spending, the economy seems fundamentally strong enough to support it. Expanding the portfolio to foreign countries, iShares MSCI Brazil ETF (EWZ) includes exposure to commodities and oil/gas giants such as Petrobras and Vale. Looking at the weekly chart, EWZ may rise to follow the bull flag, but this hedged options strategy can protect from a fall of <26% (to below $21.83) as of 6/16/23 while still maintaining the potential to quickly make up to 10% (18% annualized). EWZ is attractive to long-term investors as a dividend stock, which may buoy its valuation as well. Buy 1 $29 Call Sell 1 $31 Call Sell 1 $22 Put All expiring 6/16/23 Capital requirement: $2183
AMEX:EWZLong
by oliveinvest
1
TCOM Hedged Options TradeAt the midpoint of travel, China, and the internet is Shanghai-based TCOM -- owner and operator of Trip. com, Skyscanner, Qunar, TrainPal, MakeMyTrip and other websites for hotel reservations, transportation tickets, corporate travel, and other travel services internationally. Other areas of business are insurance products, tours and packages, travel data collection and analysis for companies, travel reporting, online advertising and financing services. As China re-opens after COVID, Beijing attempts warmer relations with Washington, and revenge travel buoys both short- and long- term outlooks for the industry, the weekly chart for TCOM shows mainly bullish with a bit of indecision. A quick peek at popular sites like Yahoo Finance confirm a positive outlook, with the majority of analysts saying it's a buy, with a few "strong buys" and a few "holds." This hedged options strategy can make up to 12% (21% annualized) while allowing TCOM room to fall 35% to below $18.81 through next June before losing any money. Buy 1 $28 Call Sell 1 $32 Call Sell 2 $19 Puts All expiring 6/16/23 Capital Required: $3763
NASDAQ:TCOMLong
by oliveinvest
IOT Bullish Hedged Options StrategySF-based Samsara provides a platform connecting IoT devices to its Cloud, for operations such as tracking fleets of vehicles and other equipment. (Its ticker, IOT, alludes to the "Internet of Things" -- connecting a network of objects with sensors, processing ability, software, and other technologies that exchange data over the internet or another communications network.) Samsara's Connected Operations Cloud also takes data from its IoT devices and enriches them with AI capability, analytics, alerts and data security/privacy. It also has advanced applications for video-based safety, vehicle telematics, apps and driver workflows, equipment monitoring, and site visibility. Customers include companies from a wide range of industries, including transportation, logistics, construction, utilities, energy, government, healthcare, education, manufacturing, food and beverage, supply chains in general. Major indices $SPX $SPY $QQQ continue to rise today, with midterm elections settling down (historically a boon for stocks) and hopeful inflation data. With a positive outlook and the holiday season approaching, perhaps IoT and supply chain logistics would be a good investment. The most recent wicks also show investors trying to drive the price up, especially on smaller timeframes such as 2-4 hours, bumping it up to the EMA. This strategy can make up to 20% (30% annualized) while protecting from a fall of up to 27% as of 7/21/2023. Sell 1 $7.50 put (exp 7/21/23) Sell 1 $10.00 put (exp 7/21/23) Capital Required: $1492 Win Probability: HIGH
NYSE:IOTLong
by oliveinvest
DK Hedged Options StrategyDelek US Holdings, Inc. is a sprawling downstream energy company composed of three segments: Refining, Logistics, Retail. It owns 4 refineries located in TX, AK, LA as well as 3 biodiesel facilities in AK, TX, MS. Its Logistics department gathers, transports, and stores crude and refined oil/products for themselves as well as third parties on hundreds of miles of pipelines. Along with a crude oil gathering system that's ~900 miles, DK also has the capacity to store ~10 million barrels. The Retail segment has 248 convenience stores in TX and NM to sell various grades of gasoline and diesel under the DK or Alon brand, which also make a profit selling other products found at gas stations such as food, alcohol, tobacco. DK's customers include oil companies, independent refiners, distributors, utility and transportation companies, the government, and independent retail fuel operators. DK hit above the MA lines for weeks and looks like it's trending up. The recent growth seen in the energy sector could be considered in its early stages with midterm politics settling down and the market rising with expectations of gridlock. However, the SPX SPY DJIA charts do not show a clear direction, and there could be some worrisome chopping ahead. This conservative strategy can make up to 11% (25% annualized) while allowing DK room to drop 25% as of April 21, 2023 before any loss. Buy 1 $32.50 Call 4/21/23 Sell 1 $35.00 Call 4/21/23 Sell 1 $25.00 Put 4/21/23 Capital Requirement: $2500 Win probability: HIGH
NYSE:DKLong
by oliveinvest
SLCA Hedged Options StrategyUS Silica Holdings Inc had a good Q3, as one of the top companies making revenue in a supportive role in the energy sector. Specifically, they supply sand that's used in hydraulic fracturing of oil and gas wells via its extensive network and can deliver on last-mile logistics (directly to the well site). Subsidiaries like EP Minerals also makes diatomaceous earth, perlite, engineered clays and other industrial products. With an increased demand for energy across the globe, this seems like a not-too-risky investment. And cross-referencing -- Analysts have mostly rated it a Strong Buy, Buy, and Hold; Yahoo Finance predicts a bullish performance both short and long term. BUT a neutral pattern is detected (see doji-ish star with a slight push up, and commodity channel index.) With the recent Fed rate hike and uncertainty in SPX and general indices, here's my even safer bet: a hedged trading outcome. Buy 1 $12 Call Sell 1 $17 Call Sell 2 $10 Puts All expiring 1/19/24 Making up to 29% on this options-investing strategy. Betting that $SLCA does NOT fall more than 34% though 1/19/24. Capital Required: $1,943
SLong
by oliveinvest
AR Hedged StrategyNatural gas producer and hydrocarbon exploration company Antero Resources has a market cap of $11.3B. Its stock followed the surge in energy prices this and last year, then corrected in June-July. With global shortages and an increased demand for natural gas (vs. oil), there's opportunity in energy long-term... but short-term uncertainty in this market. Trading at 37.33 as of publication, we can take advantage of this possible low by setting the ceiling up to the 0 level and cushion all the way down to a bit below the 2.618 to minimize the chances of a loss while maintaining potential growth through expiration in July of next year. This will make up to 14.7% (17.9% annualized) but on the downside, also allow AR room to fall a generous 48% before breaking even. Buy 1 $35 call Sell 1 $40 call Sell 2 $20 puts Exp 7/21/23 Capital Required for the strategy: $3922.64 Probability of winning: HIGH
NYSE:ARLong
by oliveinvest
Defined Risk Strategy on CHPTThe Biden administration approved the first $900 million (of $5 billion) in spending for EV charging infrastructure, sending stocks like QS, BLNK, FSR and CHPT soaring with the announcement and then neutralizing today. The 50 and 100 EMA's crossed, which some might say is a buy signal, but the RSI tops are sloping slightly down -- uncertain if it will trend down briefly. Here's how I'm defining my risk, sacrificing a bit of upside for downside protection. This makes up to 22% (35% annualized) while also cushioning ChargePoint from a fall of up to 46% (to below $9.81, through 5/19 next year) before my investment breaks even. Hedged options: Buy 1 $18 call Sell 1 $22 call Sell 2 $10 puts Exp 5/19/23 Capital Required: $1994.64
NYSE:CHPTLong
by oliveinvest
PTON Strategy - Performance UpdateInteractive fitness company Peloton was a hit during the pandemic, with its luxury touchscreen bikes, treadmills, and live, on-demand classes that were only available by subscription. Then, it took a hit by the end of last year. I used a bullish options strategy earlier in the month (9/2/22), hedging to counter downside volatility. This week there was a leadership shakeup and stock rally at PTON. When the price hit $10.55 yesterday, gains were up 12% and by maturity, they would have been 18%. It has gone back down a bit since, but the very large cushion protects my investment from a drop of up to 68% through 6/16/23.
NASDAQ:PTONLong
by oliveinvest
Options Strategy on FTCHUK-based luxury e-tailer Farfetch last made headlines at the end of August when it announced plans of major stake acquisition in Yoox Net-a-Porter YNAP. Advancing ambitions to create one leading major platform for high-end brands and sending both stocks soaring, the deal is expected to close by the end of 2023. A few days ago, Morgan Stanley increased the price target of FTCH from $30 to $32 but also gave it an Overweight rating. Retail is also facing issues, though luxury retail moves differently. Here's my bullish options strategy on FTCH that makes up to 15% (26% annualized) while protecting my investment from up to a 57% drop in price. Buy 1 $10 call Sell 1 $12 call Sell 3 $5 puts Exp 4/21/23 $1480.30 required to invest.
FLong
by oliveinvest
Trading key-levels and how to HEDGE properly (+486 pips)Is it true that the Forex Market is manipulated and controlled by a handful of banks and market makers? If so, how can we identify when they manipulate the forex markets and is it something that requires access to sophisticated tools and secret contacts? Well, let’s begin by getting a few facts straight. Firstly it is true that the forex markets are manipulated and while you don’t need any sophisticated tools or secret contacts to understand how this happens, identifying when it happens is not easy for the majority of retails traders. What most traders fail to appreciate is what the financial markets truly are and how to trade forex properly. The Forex markets is a place where buyers and sellers come together facilitated by brokers and market makers who look to profit by making a commission for each transaction. Just like any other market, buyers and sellers can only come together if there is a middleman facilitating the transaction. This middleman in the case of Forex is the market maker, and their job is simply to match buy and sell orders for the best price possible and earn the most commission that they can on each transaction. How forex works – Buyer & Seller Counterparties Every trade that is executed in the forex markets has to have a buyer and seller and when this takes place then we have a trade. This normally happens in a fraction of a second electronically but in essence, each time you enter a buy trade you are being matched with someone who is happy to enter a sell position and take the opposite side of your trade. If this doesn’t happen then there wouldn’t be a trade. Why is this so important? Because it highlights the problems that large banks have which small traders don’t. Any retail trader is able to place whatever position size they wish into the market without ever fearing slippage or bad fill. Granted slippage may take place during high impact news items such as central bank announcements but on the whole, most of the executed trades are done instantaneously. Now if you’re a retail trader trading 1 standard Lot then you won’t have any problems with being filled at the price you want. Imagine you’re trading 100 Lots or 500 Lots or 1000 lots, these are larger positions to put into the market at any one time and it’s much more difficult to find someone to take the other side of the trade at the exact price and the exact time that you want and therefore might not be filled at a great price. Well, what could you do in such a situation? You have one of three options: Option 1: You could either bite the bullet and get executed at whatever price you are able to get, the only problem here is that you won’t be getting the best price possible for your trade which eats into your profits. Option 2: You could wait for the price to get to the price level you want so that you get the best execution possible and buy or sell at a much more favorable price – this is great but what if the price doesn’t get to the level you want for you to execute your trade? You will either be forced to walk away without making a trade or be forced to take whatever price you can get if doing the trade is absolutely essential Option 3: You force the price to get to the level at which you want to transact by cleverly manipulating other smaller traders to push the market in the direction you want it to go. Once you get the price to the level you want then you can carry out your transaction. How can you do this? By taking massive positions and exercising your muscle. This is similar to when large companies and conglomerates bully smaller businesses out of the market through aggressive competition. Best Options… Which option do market makers and those with large orders take? Option 3. This is how manipulation works in simplicity. The big players who have the money to move the market in the direction they want, do so on a regular basis. What’s more, they have no option but to do this because unless they can manipulate the market then they won’t be able to execute their large orders. Think about it – what causes the price to move up? An imbalance of buy and sell orders such that there are more buy orders than sell orders which means there is more demand for that particular currency pair than there is supply. Conversely, what causes the price to fall – a larger build up of sell orders than buy orders such that supply outstrips demand thereby resulting in price falling. Now if a market maker comes into the market with a massive order to buy a currency, what will happen to the price? It will start to rise. This means that the market maker is bidding the price higher and so forcing himself to keep buying at higher and higher prices until their order is filled. This hardly sounds attractive or even smart for that matter as the market maker is in the business of maximizing their profits. So what is the alternative? The only alternative is to buy or sell in a hidden way without alerting all the other traders as to what is really happening. How does this take place? By buying into selling pressure or selling into buying pressure. In other words, what a market maker will do is do the opposite of what they intend to do in order to push the price to their desired level. What is a market maker? It is a financial intermediary set up with the sole purpose of matching buyers and sellers together to make a commission in the process. So let’s say a large European conglomerate wants to buy out a US company for $10 Billion. It can’t just go to a money exchange bureau or the bank to change that amount of money. Most likely it will go to a currency broker or a large bank who will complete the transaction by going into the money markets via their brokerage arm. Once the market maker receives the order for the transaction, their job is to convert the conglomerate’s money from Euro’s into USD. They will, therefore, be trading the EUR/USD pair and selling Euro’s and buying USD. Since this transaction of selling Euros and buying USD happens instantaneously, what the market maker needs to do is get the highest exchange rate they can for Euros to USD. The way they do this is very important as it affects the amount of commission they stand to make. In this example, it’s in the market maker’s interest to achieve the highest interest rate they can so they do this by driving the exchange rate higher first and then starting to sell the euros against this higher price. They continue to sell just as everyone else is fooled into thinking that price is going to continue higher until eventually they sell all the euros and convert into USD and complete the transaction. What happens now is that since the selling pressure has become stronger than the buying pressure, price starts to fall rapidly and everyone is left scrambling to get out of the trade once they find out that they are wrong. The reason people are left scrambling is that as a result of giving a false signal of the market starting to move up, the market maker manages to entice other traders to start buying heavily. Once the other traders find out that they were wrong in their assessment of market direction, then the main focus becomes to get out of their positions quickly. This is what we call the trap and it happens on a weekly basis in the Forex market. _________________________________________________________________________________________________________________________________________________________________________ No part of this book may be reproduced or used in any manner without written permission of the copyright owners except for the use of quotations in a book review. Any opinions, news, research, analysis, prices, trade discussions, or other information contained on this website are educational in nature and merely provided as a presentation of trading strategies. Commentaries made on this website reflect our own opinions and trading techniques and do not constitute investment advice. All information and material is for educational and entertainment purposes only and is not intended to provide financial advice. *This is not financial advice. I am not a licensed financial advisor. Seek a licensed financial advisor before making any investment decisions. I am not responsible for losses or gains that may or may not occur in the marketplace. Forex carries a high level of risk not suitable for all investors.*
Long
by TayFx
4