We went live to describe how a covered call strategy in the euro currency might work

Going long a euro currency in the face of unprecedented event risk might not be the best method of playing the potential upside. 

Futures, and options on futures trading, isn’t for everybody. But I argue that for those looking for ways to speculate (which is different than investing) and are willing to take the time to learn how to manage risk through the practice of mitigating leverage, there are endless opportunities to be creative; and hopefully profitable. In short, perhaps dabbling in the futures markets shouldn’t be part of the average investor’s portfolio, but I argue that it shouldn’t be off limits for those with a certain amount of sophistication and financial means.

 A popular strategy in the stock arena is the practice of writing call options against positions in stocks or ETFs held in a portfolio. The result is a way to increase the income produced by the portfolio while offering a moderate downside risk cushion. The same practice can be employed in the futures market, albeit a more speculative version. Also, a covered call trader in the futures market is generally better off selling options near-the-money rather than out-of-the-money as a stock trader would normally do. This is because of the leverage involved in futures trading; it is necessary to collect enough premium for the short call option to offer a reasonable hedge against risk. In other words, selling a call option for $300 will mean nothing if the futures market takes a turn against a trader to cause thousands of dollars in losses. In addition to collecting a hefty premium for the covered call option, additional downside protection is needed to avoid devastation at the hands of tail risk. Regarding leveraged futures contracts, when it comes to hedging…go big, or go home. Let’s consider an educational example.

 

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