Free Online Trading Lessons Archives
Covered Calls and Puts on Futures Trading Video
Free commodity trading video:
Applying a Covered Call or Put Strategy to Leveraged Futures
Trading futures contracts outright can be a risky proposition. Not only is it difficult to predict the direction of prices, but it is even more challenging to time entry and exit from the market.
We invite you to view the archive of a webinar we presented to introduce the concept of using commodity options to hedge the exposure of holding long or short futures contracts. Although stop order placement is a popular risk management technique, some traders believe such an approach may act as a limitation obstacle. After all, stop loss orders on futures contracts are only executed if the commodity market moves adversely to the position. In addition, they tend to be elected on sharp, but temporary, moves resulting in unnecessary trade liquidation at unfortunate prices. Perhaps a more viable strategy is the practice of selling commodity options against (in the opposite direction) long or short futures contracts. Doing so works toward a reduction of position volatility, shifts risk further away from the current market price, provides lasting power during adverse market moves, and can potentially increase the potential of a commodity trade.
This class covers the following topics:
• Covered calls in stocks vs. futures
• Constructing a bullish or bearish futures strategy hedged by short options
• Using technical and seasonal analysis to increase the odds of success of a covered call or put strategy
• Determining the quantity of short options for each futures contract
• Understanding position delta, and determining a neutral or directional bias
• Being aware of the risk of a runaway market and/or excessive commodity market volatility