Options Blueprint Series [Intermediate]: US Election Oil Play1. Introduction
The 2024 US Presidential Election could have a significant impact on global markets, especially energy sectors like crude oil. With key policies and geopolitical tensions hinging on the outcome, many traders are eyeing a potential price surge in WTI Crude Oil futures. Our prior article (linked below) presented a potential opportunity for crude oil prices to rise by over 40% within a year following the election. This could bring WTI Crude Oil Futures (CLZ2025) from its current price of 67.80 to around 94.92.
To capitalize on this potential opportunity, a strategic options play can be used to leverage this potential move, providing not only a chance to profit from a bullish breakout but also some protection against downside risk. This article explores a Breakout Booster Play using options on the December 2025 WTI Crude Oil futures contract (CLZ2025), designed to benefit from a possible post-election oil price surge.
2. Technical Overview
In analyzing the December 2025 WTI Crude Oil Futures (CLZ2025), a strong support level is identified. The 61.8% Fibonacci retracement level aligns perfectly with a UFO support zone at 55.62, suggesting a significant area where buying interest could emerge if prices fall to this level.
The current price of CLZ2025 is 67.80, and the technical analysis points to the possibility of a substantial bullish move following the 2024 US Presidential Election. The projected price increase of 40% could push crude oil prices up to 94.92 over the next year. However, even a more conservative target of 20% (around 81.36) could offer considerable upside potential.
This analysis provides the foundation for constructing an options strategy that not only takes advantage of the potential upside but also offers a buffer zone against downside risk by capitalizing on key support levels.
3. The Options Strategy
The options strategy we'll use here is a Breakout Booster Play designed to take advantage of the expected rise in crude oil prices. Here's how the strategy is constructed:
1. Sell 2 Puts at the 55 Strike:
Expiring on November 17, 2025, these puts are sold to collect a premium of approximately 3.27 points per contract.
By selling 2 puts, we collect a total of 6.54 points.
This creates a buffer zone, allowing us to take on some downside risk while still profiting if prices remain above 55.
2. Buy 1 Call at the 71 Strike:
Also expiring on November 17, 2025, the call is purchased for 6.28 points.
This call gives us the potential for unlimited upside if crude oil prices rise above 71.
Net Cost: The net cost of this strategy is minimal, with the collected premium from the puts (6.54) offsetting most of the cost of the call (6.28). The result is a credit of 0.26 points, meaning the trader gets paid to enter this position.
Break-Even Points:
The position would lose money only if crude oil falls below 54.87 (factoring in the premium collected).
Profit potential becomes significant if crude oil rises above 71, with large gains expected if the projected move to 81.36 or 94.92 materializes.
This strategy effectively positions the trader to profit from an upward breakout while maintaining a buffer against downside risk. If crude oil drops, losses are limited unless it falls below 54.87, at which point the trader would be required to take delivery of 2 crude oil futures contracts (long).
4. Profit and Risk Analysis
Profit Potential:
The key advantage of this options strategy is its profit potential on the upside. If crude oil prices rise above 71, the purchased call will start gaining value significantly.
If crude oil reaches 94.92 (a 40% increase from the current price), the long call will be deep in the money, resulting in substantial profits.
Even if the price rises more conservatively to 81.36 (a 20% increase), the strategy still allows for meaningful gains as the call appreciates.
Since the net entry cost is essentially zero (with a small credit of 0.26 points), the potential profit is high, and it becomes especially powerful above 71, with unlimited upside.
Risk Management:
This strategy comes with a 19% buffer before any losses occur at expiration, as the break-even point is 54.87. However, it is important to note that if the trade is closed before expiration, losses could be realized if crude oil prices have dropped, even if the price is above 55.
Risk Pre-Expiration: If crude oil prices fall sharply, especially before expiration, the trader could face significant losses. The risk is theoretically unlimited because, as the market moves against the sold puts, their value could rise dramatically. If a trader needs to close the position early, those puts could be worth significantly more than the premium initially collected, resulting in losses.
Potential Margin Calls: If crude oil drops far enough, the trader may receive a margin call on the short puts. This could happen well before the price reaches 54.87, depending on the speed and size of the drop. If not managed properly, this could force the trader to close the position at a significant loss.
While there is a built-in buffer, this trade requires active monitoring, particularly if crude oil prices start to decline. Risk management techniques, such as stop-loss orders, rolling options, or hedging, should be considered to mitigate losses in case the market moves unexpectedly.
5. Contract Specs and Margins
WTI Crude Oil Futures (CL)
Tick Size: The minimum price fluctuation is 0.01 per barrel.
Tick Value: Each 0.01 movement equals $10 per contract.
Margin Requirement: Approximately $6,100 per contract (subject to change based on market volatility).
Micro Crude Oil Futures (MCL)
Tick Value: Each 0.01 movement equals $1 per contract.
Margin Requirement: Approximately $610 per contract, offering a lower capital requirement for smaller positions.
Why Mention Both?
Traders with larger capital allocations may prefer using standard WTI Crude Oil futures contracts, given their greater exposure and tick value. However, for smaller or more conservative traders, Micro Crude Oil Futures (MCL) provide a more accessible way to enter the market while maintaining the same exposure ratios in a smaller size.
6. Summary and Conclusion
This options strategy provides a powerful way to capitalize on a potential post-election rally in crude oil prices, while offering downside protection. The combination of selling 2 puts at the 55 strike and buying 1 call at the 71 strike, all expiring on November 17, 2025, creates a structured approach to profit from a bullish breakout.
With current analysis based on machine learning suggesting a potential 40% increase in crude oil prices over the next year, the long call offers unlimited profit potential above 71. At the same time, the sale of the puts at the 55 strike gives the strategy a 19% buffer, with the break-even point at expiration being 54.87.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.
General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
Optionsspreads
Options Blueprint Series: Bear Put Diagonal Fly on Euro FuturesIntroduction
Euro FX EUR/USD Futures are a key instrument in the futures market, allowing traders to speculate on the future value of the Euro against the US Dollar. Trading Euro FX EUR/USD Futures provides exposure to the currency markets, enabling traders to hedge risk or capitalize on market movements.
Key Contract Specifications:
Contract Size: 125,000€
Tick Size: 0.00005
Tick Value: $6.25
Margin Requirements: Approximately $2,100 (varies by broker and market conditions and changes through time)
These contract specs are crucial for understanding the potential profit and loss scenarios when trading Euro Futures. The tick size and value help determine the smallest price movement and its monetary impact, while the margins indicate the amount of capital required to initiate a position.
Strategy Explanation
The Bear Put Diagonal Fly is an advanced options strategy designed to profit from a bearish market outlook. This strategy involves buying and selling put options with different expiration dates and strike prices, creating a diagonal spread.
Bear Put Diagonal Fly Breakdown:
Buy 1 Put (longer-term expiration): This long put provides downside protection over a longer period, benefiting from a significant decline in the underlying asset.
Sell 1 Put (intermediate-term expiration): This short put helps to offset the cost of the long put, generating premium income and partially financing the trade.
Buy 1 Put (shorter-term expiration): This additional long put offers further downside protection, particularly for a shorter duration, enhancing the overall bearish exposure.
Purpose of the Strategy: The Bear Put Diagonal Fly is structured to take advantage of a declining market with specific price movements over different time frames. The staggered expiration dates allow the trader to benefit from time decay and volatility changes.
Advantages:
Cost Reduction: The premium received from selling the put helps to reduce the overall cost.
Enhanced Bearish Exposure: The additional shorter-term put provides extra exposure.
Flexibility: The strategy can be adjusted or rolled over as market conditions change.
Potential Risks:
Time Decay: If the market does not move as expected, the long puts may lose value due to time decay.
Volatility Risk: Changes in market volatility can impact the value of the options.
Application on Euro Futures
To apply the Bear Put Diagonal Fly strategy on Euro Futures, careful selection of strike prices and expiration dates is crucial. This strategy involves three options positions with different expirations to optimize the potential profit from a bearish market move.
Selecting Strike Prices and Expiration Dates:
Long Put (longer term): Choose a strike price above the current market price of Euro Futures to benefit from a significant decline.
Short Put (intermediate term): Select a strike price closer to the market price to maximize premium income while reducing the overall cost of the strategy.
Long Put (shorter term): Pick a strike price below the market price to provide additional bearish exposure.
Why This Strategy is Suitable for Euro Futures:
Market Conditions: As seen on the upper chart, the current market outlook for the Euro suggests potential downside due to technical factors, making a bearish strategy appropriate.
Volatility: Euro Futures often experience significant price movements, which can be advantageous for the Bear Put Diagonal Fly strategy, as it thrives on volatility.
Flexibility: The staggered expiration dates allow for adjustments and management of the trade over time, accommodating changing market conditions.
Futures (underlying using the 6E1! continuous ticker symbol) Entry, Target, and Stop-Loss Prices:
Short Entry: 1.09000
Target: 1.08200
Stop-Loss: 1.09400
Options Trade Setup (using Futures September cycle with 6EU2024 ticker symbol):
The Bear Put Diagonal Fly on Euro Futures involves a structured approach to setting up the trade. Here’s a step-by-step guide to executing this strategy:
1. Buy 1 Put (Sep-6 expiration):
Strike Price: 1.095
Premium Paid: 0.0102 (or $1,275 per contract)
2. Sell 1 Put (Aug-23 expiration):
Strike Price: 1.09
Premium Received: 0.0061 (or $762.5 per contract)
3. Buy 1 Put (Aug-9 expiration):
Strike Price: 1.085
Premium Paid: 0.0021 (or $262.5 per contract)
Risk Calculation:
Net Cost = ($1,275 + $262.5) - $762.5 = $775
Risk: The initial net cost of the strategy. Risk = $775
Trade and Risk Management
Effective risk management is essential when trading options strategies like the Bear Put Diagonal Fly on Euro Futures. Effectively managing the Bear Put Diagonal Fly on Euro Futures is crucial to optimize potential profits and mitigate risks. Here are common guidelines for managing this options strategy:
Using Stop-Loss Orders:
In the Bear Put Diagonal Fly strategy, setting a stop-loss at 1.0940 ensures that if Euro Futures move against the expected direction, the losses are contained.
Avoiding Undefined Risk Exposure:
The Bear Put Diagonal Fly is a defined risk strategy, meaning the maximum loss is known upfront and limited to the initial net cost.
Precise Entries and Exits:
Timing the Market: Entering and exiting trades at the right time is crucial. Using technical analysis tools such as UFO Support or Resistance levels can help identify optimal entry and exit points.
Monitor Time Decay:
Keep a close eye on how the time decay (theta) impacts the value of the options. As the short put approaches expiration, assess whether to roll it to a later date or let it expire.
Volatility Changes:
Changes in market volatility can affect the strategy’s profitability.
Rolling Options:
If the market moves unfavorably, rolling the options to different strike prices or expiration dates can help manage risk and maintain the strategy’s viability.
Regular Check-ins:
Review the position regularly to ensure it aligns with the expected market movement. Adjust if the market conditions change or if the position starts to deviate from the initial plan.
Profit Targets:
Set predefined profit targets and consider taking profits when these targets are reached.
Exit Strategies:
Have a clear exit plan for different scenarios, at least for when the stop-loss or target is hit.
By implementing robust risk management practices, traders can enhance their ability to manage potential losses and improve the overall effectiveness of their trading strategies. Managing the Bear Put Diagonal Fly requires active monitoring and the flexibility to adjust the positions as market conditions evolve. This proactive approach helps in maximizing potential returns while mitigating risks.
Conclusion
The Bear Put Diagonal Fly is an advanced options strategy tailored for a bearish outlook on Euro Futures. By strategically selecting options with different expiration dates and strike prices, this strategy offers a cost-effective way to capitalize on anticipated declines in the Euro while managing risk.
Summary of the Bear Put Diagonal Fly Strategy:
Cost Reduction: The short put helps to offset the cost of the long puts, making the strategy more affordable.
Enhanced Bearish Exposure: The additional long put provides extra downside protection.
Flexibility: The staggered expiration dates allow for adjustments and trade management over time.
Why This Strategy Could Be Beneficial:
The current market conditions suggest potential downside for Euro Futures, making a bearish strategy like the Bear Put Diagonal Fly appropriate.
The defined risk nature of the strategy ensures that maximum potential losses are known upfront.
Effective trade and risk management techniques can further enhance the strategy’s performance and mitigate potential risks.
By understanding the mechanics of the Bear Put Diagonal Fly and applying it to Euro Futures, traders can leverage this advanced options strategy to navigate bearish market conditions with greater confidence and precision.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.
General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
Exploring Bearish Plays w/ Futures, Micros & Options on FutureIntroduction
The WTI Crude Oil futures market provides various avenues for traders to profit from bullish and bearish market conditions. This article delves into several bearish strategies using standard WTI Crude Oil futures, Micro WTI Crude Oil futures contracts, and options on these futures. Whether you are looking to trade outright futures contracts, construct complex spreads, or utilize options strategies, this publication aims to assist you in formulating effective bearish plays while managing risk efficiently.
Choosing the Right Contract Size
When considering a bearish play on WTI Crude Oil futures, the first decision involves selecting the appropriate contract size. The standard WTI Crude Oil futures and Micro WTI Crude Oil futures contracts offer different levels of exposure and risk.
WTI Crude Oil Futures:
Standardized contracts linked to WTI Crude Oil with a point value = $1,000 per point.
Suitable for traders seeking significant exposure to market movements.
Greater potential for profits but also higher risk due to larger contract size.
TradingView ticker symbol is CL1!
Margin Requirements: As of the current date, the margin requirement for WTI Crude Oil futures is approximately $6,000 per contract. Margin requirements are subject to change and may vary based on the broker and market conditions.
Micro WTI Crude Oil Futures:
Contracts representing one-tenth the value of the standard WTI Crude Oil futures.
Each point move in the Micro WTI Crude Oil futures equals $100.
Ideal for traders who prefer lower exposure and risk.
Allows for more precise risk management and position sizing.
TradingView ticker symbol is MCL1!
Margin Requirements: As of the current date, the margin requirement for Micro WTI Crude Oil futures is approximately $600 per contract. Margin requirements are subject to change and may vary based on the broker and market conditions.
Choosing between standard WTI Crude Oil and Micro WTI Crude Oil futures depends on your risk tolerance, account size, and trading strategy. Smaller contracts like the Micro WTI Crude Oil futures offer flexibility, particularly for newer traders or those with smaller accounts.
Bearish Futures Strategies
Outright Futures Contracts:
Selling WTI Crude Oil futures outright is a straightforward way to express a bearish view on the market. This strategy involves selling a futures contract in anticipation of a decline in oil prices.
Benefits:
Direct exposure to market movements.
Simple execution and understanding.
Ability to leverage positions due to margin requirements.
Risks:
Potential for significant losses if the market moves against your position.
Mark-to-market losses can trigger margin calls.
Example Trade:
Sell one WTI Crude Oil futures contract at 81.00.
Target price: 76.00.
Stop-loss price: 82.50.
This trade aims to profit from a 5.00-point decline in oil prices, with a risk of a 1.50-point rise.
Futures Spreads:
1. Calendar Spreads: A calendar spread, also known as a time spread, involves selling (or buying) a longer-term futures contract and buying (or selling) a shorter-term futures contract with the same underlying asset. This strategy profits from the difference in price movements between the two contracts.
Benefits:
Reduced risk compared to outright futures positions.
Potential to profit from changes in the futures curve.
Risks:
Limited profit potential compared to outright positions.
Changes in contango or backwardation could hurt the position.
Example Trade:
Sell an October WTI Crude Oil futures contract.
Buy a September WTI Crude Oil futures contract.
Target spread: Decrease in the difference between the two contract prices.
In this example, the trader expects the October contract to lose more value relative to the September contract over time. The profit is made if the spread between the December and September contracts widens.
2. Butterfly Spreads: A butterfly spread involves a combination of long and short futures positions at different expiration dates. This strategy profits from minimal price movement around a central expiration date. It is constructed by selling (or buying) a futures contract, buying (or selling) two futures contracts at a nearer expiration date, and selling (or buying) another futures contract at an even nearer expiration date.
Benefits:
Reduced risk compared to outright futures positions.
Profits from stable prices around the middle expiration date.
Risks:
Limited profit potential compared to other spread strategies or outright positions.
Changes in contango or backwardation could hurt the position.
Example Trade:
Sell one November WTI Crude Oil futures contract.
Buy two October WTI Crude Oil futures contracts.
Sell one September WTI Crude Oil futures contract.
In this example, the trader expects WTI Crude Oil prices to remain relatively stable.
Bearish Options Strategies
1. Long Puts: Buying put options on WTI Crude Oil futures is a classic bearish strategy. It allows traders to benefit from downward price movements while limiting potential losses to the premium paid for the options.
Benefits:
Limited risk to the premium paid.
Potential for significant profit if the underlying futures contract price falls.
Leverage, allowing control of a large position with a relatively small investment.
Risks:
Potential loss of the entire premium if the market does not move as expected.
Time decay, where the value of the option decreases as the expiration date approaches.
Example Trade:
Buy one put option on WTI Crude Oil futures with a strike price of 81.00, expiring in 30 days.
Target price: 76.00.
Stop-loss: Premium paid (e.g., 2.75 points x $1,000 per contract).
If the WTI Crude Oil futures price drops below 81.00, the put option gains value, and the trader can sell it for a profit. If the price stays above 78.25, the trader loses only the premium paid.
2. Synthetic Short: Creating a synthetic short involves buying a put option and selling a call option at the same strike price and expiration. This strategy mimics holding a short position in the underlying futures contract.
Benefits:
Similar profit potential to shorting the futures contract.
Flexibility in managing risk and adjusting positions.
Risks:
Potential for unlimited losses if the market moves significantly against the position.
Requires margin to sell the call option.
Example Trade:
Buy one put option on WTI Crude Oil futures at 81.00, expiring in 30 days.
Sell one call option on WTI Crude Oil futures at 81.00, expiring in 30 days.
Target price: 76.00.
The profit and loss (PnL) profile of the synthetic short position would be the same as holding a short position in the underlying futures contract. If the price falls, the position gains value dollar-for-dollar with the underlying futures contract. If the price rises, the position loses value in the same manner.
3. Bearish Options Spreads: Options offer versatility and adaptability, allowing traders to design various bearish spread strategies. These strategies can be customized to specific market conditions, risk tolerances, and trading goals. Popular bearish options spreads include:
Vertical Put Spreads
Bear Put Spreads
Put Debit Spreads
Ratio Put Spreads
Diagonal Put Spreads
Calendar Put Spreads
Bearish Butterfly Spreads
Bearish Condor Spreads
Etc.
Example Trade:
Bear Put Spread: Buying the 81.00 put and selling the 75.00 put with 30 days to expiration.
Risk Profile Graph:
This example shows a bear put spread aiming to profit from a decline in WTI Crude Oil prices while limiting potential losses.
For detailed explanations and examples of these and other bearish options spread strategies, please refer to our published ideas under the "Options Blueprint Series." These resources provide in-depth analysis and step-by-step guidance.
Trading Plan
A well-defined trading plan is crucial for successfully executing any strategy. Here’s a step-by-step guide to formulating your plan:
1. Select the Strategy: Choose between outright futures contracts, calendar or butterfly spreads, or options strategies based on your market outlook and risk tolerance.
2. Determine Entry and Exit Points:
Entry price: Define the price level at which you will enter the trade (e.g., breakout, UFO resistance, indicators convergence/divergence, etc.).
Target price: Set a realistic target based on technical analysis or market projections.
Stop-loss price: Establish a stop-loss level to manage risk and limit potential losses.
3. Position Sizing: Calculate the appropriate position size based on your account size and risk tolerance. Ensure that the position aligns with your overall portfolio strategy.
4. Risk Management: Implement risk management techniques such as using stop-loss orders, hedging, and diversifying positions to protect your capital. Risk management is vital in trading to protect your capital and ensure long-term success.
Conclusion
In this article, we've explored various bearish strategies using WTI Crude Oil futures, Micro WTI Crude Oil futures, and options on futures. From outright futures contracts to sophisticated spreads and options strategies, traders have multiple tools to capitalize on bearish market conditions while managing their risk effectively.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.
General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
Exploring Bullish Plays with E-minis, Micro E-minis and OptionsIntroduction
The S&P 500 futures market offers a variety of ways for traders to capitalize on bullish market conditions. This article explores several strategies using E-mini and Micro E-mini futures contracts as well as options on futures. Whether you are looking to trade outright futures contracts, create sophisticated spreads, or leverage options strategies, this guide will help you design effective bullish plays while managing your risk.
Choosing the Right Contract Size
When considering a bullish play on the S&P 500 futures, the first decision is choosing the appropriate contract size. The E-mini and Micro E-mini futures contracts offer different levels of exposure and risk.
E-mini S&P 500 Futures:
Standardized contracts linked to the S&P 500 index with a point value = $50 per point.
Suitable for traders seeking significant exposure to market movements.
Greater potential for profits but also higher risk due to larger contract size.
TradingView ticker symbol is ES1!
Margin Requirements: As of the current date, the margin requirement for E-mini S&P 500 futures is approximately $12,400 per contract. Margin requirements are subject to change and may vary based on the broker and market conditions.
Micro E-mini S&P 500 Futures:
Contracts representing one-tenth the value of the standard E-mini S&P 500 futures.
Each point move in the Micro E-mini S&P 500 futures equals $5.
Ideal for traders who prefer lower exposure and risk.
Allows for more precise risk management and position sizing.
TradingView ticker symbol is MES1!
Margin Requirements: As of the current date, the margin requirement for Micro E-mini S&P 500 futures is approximately $1,240 per contract. Margin requirements are subject to change and may vary based on the broker and market conditions.
Choosing between E-mini and Micro E-mini futures depends on your risk tolerance, account size, and trading strategy. Smaller contracts like the Micro E-minis provide flexibility, especially for newer traders or those with smaller accounts.
Bullish Futures Strategies
Outright Futures Contracts:
Buying E-mini or Micro E-mini futures outright is a straightforward way to express a bullish view on the S&P 500. This strategy involves purchasing a futures contract in anticipation of a rise in the index.
Benefits:
Direct exposure to market movements.
Simple execution and understanding.
Ability to leverage positions due to the margin requirements.
Risks:
Potential for significant losses if the market moves against your position.
Requires substantial margin and capital.
Mark-to-market losses can trigger margin calls.
Example Trade:
Buy one E-mini S&P 500 futures contract at 5,588.00.
Target price: 5,645.00.
Stop-loss price: 5,570.00.
This trade aims to profit from a 57-point rise in the S&P 500, with a risk of a 18-point drop.
Futures Spreads:
1. Calendar Spreads: A calendar spread, also known as a time spread, involves buying (or selling) a longer-term futures contract and selling (or buying) a shorter-term futures contract with the same underlying asset. This strategy profits from the difference in price movements between the two contracts.
Benefits:
Reduced risk compared to outright futures positions.
Potential to profit from changes in the futures curve.
Risks:
Limited profit potential compared to outright positions.
Changes in contango could hurt the position.
Example Trade:
Buy a December E-mini S&P 500 futures contract.
Sell a September E-mini S&P 500 futures contract.
Target spread: Increase in the difference between the two contract prices.
In this example, the trader expects the December contract to gain more value relative to the September contract over time. The profit is made if the spread between the December and September contracts widens.
2. Butterfly Spreads: A butterfly spread involves a combination of long and short futures positions at different expiration dates. This strategy profits from minimal price movement around a central expiration date. It is constructed by buying (or selling) a futures contract, selling (or buying) two futures contracts at a nearer expiration date, and buying (or selling) another futures contract at an even nearer expiration date.
Benefits:
Reduced risk compared to outright futures positions.
Profits from stable prices around the middle expiration date.
Risks:
Limited profit potential compared to other spread strategies or outright positions.
Changes in contango could hurt the position.
Example Trade:
Buy one December E-mini S&P 500 futures contract.
Sell two September E-mini S&P 500 futures contracts.
Buy one June E-mini S&P 500 futures contract.
In this example, the trader expects the S&P 500 index to remain relatively stable.
Bullish Options Strategies
1. Long Calls: Buying call options on S&P 500 futures is a classic bullish strategy. It allows traders to benefit from upward price movements while limiting potential losses to the premium paid for the options.
Benefits:
Limited risk to the premium paid.
Potential for significant profit if the underlying futures contract price rises.
Leverage, allowing control of a large position with a relatively small investment.
Risks:
The potential loss of the entire premium if the market does not move as expected.
Time decay, where the value of the option decreases as the expiration date approaches.
Example Trade:
Buy one call option on E-mini S&P 500 futures with a strike price of 5,500, expiring in 73 days.
Target price: 5,645.00.
Stop-loss: Premium paid (e.g., 213.83 points x $50 per contract).
If the S&P 500 futures price rises above 5,500, the call option gains value, and the trader can sell it for a profit. If the price stays below 5,500, the trader loses only the premium paid.
2. Synthetic Long: Creating a synthetic long involves buying a call option and selling a put option at the same strike price and expiration. This strategy mimics owning the underlying futures contract.
Benefits:
Similar profit potential to owning the futures contract.
Flexibility in managing risk and adjusting positions.
Risks:
Potential for unlimited losses if the market moves significantly against the position.
Requires margin to sell the put option.
Example Trade:
Buy one call option on E-mini S&P 500 futures at 5,500, expiring in 73 days.
Sell one put option on E-mini S&P 500 futures at 5,500, expiring in 73 days.
Target price: 5,645.00.
The profit and loss (PnL) profile of the synthetic long position would be the same as owning the outright futures contract. If the price rises, the position gains value dollar-for-dollar with the underlying futures contract. If the price falls, the position loses value in the same manner.
3. Bullish Options Spreads: Options are incredibly versatile and adaptable, allowing traders to design a wide range of bullish spread strategies. These strategies can be tailored to specific market conditions, risk tolerances, and trading goals. Here are some popular bullish options spreads:
Vertical Call Spreads
Bull Call Spreads
Call Debit Spreads
Ratio Call Spreads
Diagonal Call Spreads
Calendar Call Spreads
Bullish Butterfly Spreads
Bullish Condor Spreads
Etc.
The following Risk Profile Graph represents a Bull Call Spread made of buying the 5,500 call and selling the 5,700 call with 73 to expiration:
For detailed explanations and examples of these and other bullish options spread strategies, please refer to the many published ideas under the "Options Blueprint Series." These resources provide in-depth analysis and step-by-step guidance.
Trading Plan
A well-defined trading plan is crucial for successful execution of any bullish strategy. Here’s a step-by-step guide to formulating your plan:
1.Select the Strategy: Choose between outright futures contracts, calendar or butterfly spreads, or options strategies based on your market outlook and risk tolerance.
2. Determine Entry and Exit Points:
Entry price: Define the price level at which you will enter the trade (breakout, UFO support, indicators convergence/divergence, etc.)
Target price: Set a realistic target based on technical analysis or market projections.
Stop-loss price: Establish a stop-loss level to manage risk and limit potential losses.
3. Position Sizing: Calculate the appropriate position size based on your account size and risk tolerance. Ensure that the position aligns with your overall portfolio strategy.
4. Risk Management: Implement risk management techniques such as using stop-loss orders, hedging, and diversifying positions to protect your capital. Risk management is vital in trading to protect your capital and ensure long-term success
Conclusion and Preview for Next Article
In this article, we've explored various bullish strategies using E-mini and Micro E-mini S&P 500 futures as well as options on futures. From outright futures contracts to sophisticated spreads and options strategies, traders have multiple tools to capitalize on bullish market conditions while managing their risk effectively.
Stay tuned for our next article, where we will delve into bearish plays using similar instruments to navigate downward market conditions.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.
General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.