Defined Risk Index Spread | John McNichol | 5-18-20 | Trading Futures
Good morning. Everyone john, McNichol, here welcome, to hopefully, another fantastic, week, of education, at TD Ameritrade this. Is John McNichol, you've, joined us on trading, futures our, subject. Is index. Futures options, so, stick around. All, right well good morning everyone that's with us here live today. Mike. Lawrence. Joe. Charles. Sandeep. Jerry Pardo's, with us appreciate. You joining us each and every week at TD Ameritrade you. Can see my twitter handle on, the screen if you wish to follow myself. Other. Fine instructors, at. Jay McNichol underscore, TD a special. Shout out to those of you that are following, us on the archive session, feel. Free to follow me there as well maybe. There's something, you'd like for me to address, during, the webcast certainly. Love to get some feedback and, I do. E, trader. Q&A. On. Wednesdays. That's. A good Avenue to, potentially. Get your question, highlighted. On that. Webcast, there, well. Without further ado, let's go ahead and take care of disclosures. And we'll get right into our topic today. Nice. To see William and. Sal. From Cali remember. Folks fall and presentation, is for educational purposes. Only and not, a recommendation, or endorsement, a particular, investment, or investment strategy. Past, performance, of any security or strategy, does not indicate or guarantee, future, results. Future. Success, look at future results may not be food fast, I know in order to demonstrate the functionality the platform we will be used in actual symbols keeping in mind TD Ameritrade again, does not make recommendations, on those individual, strategies any investment, decision you make in your self-directed, account, is solely your, responsibility now. While this webcast may discuss technical analysis, other, approaches, include fundamental, analysis, may assert very different views our. Topic is on futures, and futures options that. Trading, is speculative, for. All investors risk disclosures, provided for you here keep, in mind that futures and futures options train services, are provided by TD. Ameritrade, futures and Forex LLC. Those. Trade privileges are subject, to review and approval not all clients will qualify, some. Of the practice trades that we do deal, around with futures options such, as spreads, spread, straddles, of the multi lake option, strategies, can entail substantial, transaction, costs.
So Us. These. Advanced option strategies often involve greater and more complex, risk than single egg option trades. I keep, mine there's, zero Commission for us exchange listed stocks ETFs and options trades. Remaining. Offer futures, different. Commission structure there we'll show you that when we do a practice trades and speaking. The practice trades the, paper money software, is for educational, purposes only and successful. Virtual trading, during, one time period does not guarantee successful. Investing of actual funds there, later time period as market conditions change continuously. All, right. Here. We go a, little. Background for those you that may not be familiar with me been an education, coach since 2004. Focus. On educational, topics such, as technical analysis, sector rotation, box. Options and futures look. At the webcast, schedule, you, can see some of the various classes I teach and, also. Certainly, enjoy, teaching, some of our live events, which. We had to forego but we do have, some. Examples of, a what, we call a virtual, workshop. Go. Ahead and take, a look at. The. Events. Calendar. Whether. Through the thinkorswim, platform. Or. On the TD. Ameritrade website. Went. Up to education. And under. In-person, events. Pretty. Excited, we started this over to last month and we, have another, session. Starting. Tonight it's. The option strategies, virtual, workshop kind, of a slice of a, day from one of our live. Events but this has taught over four nights 7:00, p.m. Eastern time through. 8:30, p.m. Eastern Time so 90 minutes on Monday. Tuesdays, Wednesdays and, Thursdays. Even. Give you a reference guide you can learn more by registering. For. That if you wish these, are only live. So. Make, sure you save, some time for that and yours. Truly will actually be teaching, this. Workshop. Over the next couple days be. Joined by my good friends, ray. Kimbrel, and, also. Scott Durfee, those you that have attended our live events, know, them full and well there's. The dates, we. Try to look, in upcoming. Sessions. Or upcoming weeks. You. May see other times pop up on the board we've, had some times, looking. At the central and. Pacific, times as well. Keep an eye open for some of those dates. Alright, hey guess what Ken Rose is on the chat with us today you have any questions feel free take. Advantage, of ends. Expertise. There. As. You see me being with the company since 2004, many of the coaches have, been with, the organization for. 15. Years and more. And arrests thank you for joining this, futures, class for the first time, let's. Talk about what you're gonna learn about today we're, gonna focus on some of the characteristics. Of index. Futures options. Showing. Those you that may already be trade equity options transitioning. By. Utilizing, some of the same strategies you may already know and, in. That is defined risk spreads. Talk, about potential entry and exit and trade management techniques, although, some other resources, available for you and as, always in this class, termina. Propria, tryst and position, sizing regardless, of what position.
Instrument. Stock, futures currencies. Whatever you're trading make sure you define that risk. Some, common trading. Pairen trading. Between options, futures. And, on equities. Some. Of the things, that stick out. Is. The access, to a wide array, of asset, classes. Such. As indices, that we'll be talking about today. Energy. Contracts, interest. Rates metals, currencies, agriculture. Now over, the next four. Weeks we'll. Be touching on each, of these more widely, traded futures. Contracts. With, the company options. On them. Trading, hours essentially, almost 24 hours a day, six. Days a week. Not, that it's an excuse, for not being well capitalized. But. There, is no pattern day trading rule for. Futures and futures options unlike. Equity, and equity, options. And one. Main contrast. Here we need to understand, is you know where equity. Indices. May settle. In. An underlying, stock, or, in, the case, of. An. Index. Option, at. Expiration. May. Result in a. Adjustment. On cash. When. It comes to futures. Options, would result, in a position, in the underlying futures, contract, and when these make sure they manage that as. There, are varied. Margin, requirements. To maintain a futures, contract it, also. Does. When. It comes to risk ones, in an option, trade or a spread, trade that, defined, risk goes. Out the door when. An underlying. Futures, contract, is being held and this, needs to be adjusted. Accordingly. Go. Ahead and bring. Up. Well, what we'll do is we'll take a look at some. Of the major, contracts, that. Are available for options trading we'll go and we'll look at the charts I'm, sure some of you may be logged on as well as say you guys how's this week starting off we'll. We'll, bring. In some current. Market. Observations. Into. The mix, and. So, with that in mind we're. Looking at /e. S, which, represents. The S&P, 500. It's. Called the mini contract. Reference. In a futures, contract on, the S&P 500, now, one. Of the things and this is particularly. Important for those you that are new is you. Know one of the attractions, for, futures. And futures options is the leverage. Each. Contract, has a multiplier. And in, the case of the SP, futures that is, $50. Times, the, premium. The case of the underlined. Future would be 50 x times the index. Now, with that multiplier, there is going to be a, fluctuation. What we call a tick size or a minimum fluctuation. There in. The SP, ne, it's going to be a. Quarter. Now, that quarter is not 25, cents, it's the multiplier, you multiply that by $50. It is, $12.50. Per tick. And therefore, a full, point on the, index would equate out to, that multiplier. Or 50. So, you can see some of the minimum quotations, I, you. Know if the option. Contract. Is priced, a lot, lower you may see, increments. As small as a nickel. You can, see the trading, hours. This, is typical for many contracts, you know as far as the trading hours almost 25, hours a day from Sunday, evening, through Friday. Afternoon. There. Are some trading halts. Briefly. And then also, typically. Some daily maintenance for. About an hour. Where. Things pick up again. One, thing to consider. With. The. Various. Contracts. Is the, daily, settlement even though. The contract may continue, to trade. There, is a daily, settlement now in the index, futures. And, futures. Options, typically. About approximately, fifteen minutes after the. Equity. Closed at. 4:00 p.m. Eastern, Time or 3:00 p.m. Central. Time. The, end of trading. Is typically. In the case of these index futures options, beyond. The third Friday, of the contract, month. Is usually going. To be similar. To the standard equity. Options. Or. Typically the third Friday of each month. But notice the time of that is actually. In the morning going, to be at the opening, of the, equities market on that Friday so the trading actually ends at the beginning of the, regular, trading, session not at.
The End of the day now. There are also some. Variations. Non-standard. Contracts, such. As weekly options that. May have expirations. On various days throughout the week and. Also. End the month options. There's, also a contrast, as far as terms American. Style versus, European, style American, style options. Short. Options are at risk of assignment, at, any time up and through, that. Expiration. Whereas on European, style options, the. Settlements. Or. If if one was to be assigned, would. Be would occur at. Expiration. As I, mentioned from our general graphic the, options, exercise results, in a, position. In the underlying cash-settled. Futures contract. These, index, futures contracts, are cash settled they. Would not result. In stock. Positions. Now. Looking at some of the questions, and. Good questions. Discussing. About. Other. Futures. Contracts. And. We're gonna be covering a lot of these in some. Of our upcoming. Sessions. We'll, take a glance at some of them you know whether it's crude, gold, one. Of the things that that's discussed, is you, know the relationship. Of those futures, contracts, is there is a a, buyer. Of the contract, and a seller of the contract, and both, becomes. The futures, are obligated. To each other. Theoretically. The, person. Who buys, a contract, is. Is. Obligated. To, provide on-demand. Or. At. A particular, settlement, at. A, particular. Commodity you know could be crude would, be gold. Rains. Things like that whereas the seller of the contract, has the obligation to, deliver that now, or. Speculators. That. Any. Futures, traders, and options traders may fall in they have no intention, of, taken. Delivery of those, any, of the contracts, are traded may, not have intention, of taking, delivery, or delivered, in those contracts. With TD Ameritrade futures and Forex. The. Organization, does not allow, the physical. Delivery, of, those. Commodities. So but, it'll happen is one would have to close out that, position. Prior. To. Expiration, and, there's what's called a liquidate, and schedule. I believe, usually, it's about two days prior, to that expiration. So. No. Fear of having a, a. Fuel. Truck or. Bushels. Of grain being, dumped at your location, now there are physical locations, on where this occurs, but. Keep in mind we, talked about management techniques on closing out two positions, prior. To. Any. Of those dates and keep, in mind when it comes to the, options. That doesn't, deal with physical delivery, it deals with the. Assignment. On the underlying, contract. Which then would have to be liquidated. Prevent. Any. Type of assignment. There great. Question, there Vic - appreciate it and hopefully we're, helping you get, by some. Of the fears, of. The. Unknown when. It comes to futures and futures options. Here's. The Nasdaq. /nq. Which is the mini contract. You. Can see some, of the similar, specs that we had with the, SP. Futures. With, the contrast, on the. Multiplier. Being. $20. And you, can see some of the minimum fluctuations, let's get that mouse out of the way I. Light. My mouse free there. Similar, fluctuation. Of about, a quarter of that, quarter is worth about $5. Per dick. Settlement. Range is still the same. The the, third contractor, will bring up is, /r. T Y which. Is the Russell. 2000. Futures. Options, notice. The multiplier, is going to be similar. To the SP the $50.00. However. The fluctuation. Is going to be a little different, it's $0.10, increments. $5. Per tick. Again, you can see similar trading hours, settlements. And some. Of the contracts. That are available. Now, if we spend a moment let's go ahead and go to the charts and we'll talk about some of the economic, calendar there. Bring, up the thinkorswim platform. And what. We'll do let's, see, by. The way you can see my Twitter handle on the screen if you, wish to follow and, also if you like these webcast this. Session is part of the trader Talks channel. On youtube feel. Free to click and subscribe. Kind, of cool you can turn on notifications as. Well and if. You're on a mobile device you, can get popups when there's a session in maybe you're commuting, you. Can go ahead and check out an archived session, or. Join us live also. From the investor, side, we have an investor, insights, channel, to, focus on more of the longer-term. Aspects. Of education we, got you covered there. Now down in the lower. Well--since, market is open. See. What. Industries. Are driving, the market up. Energy. Stocks are up about six and a half percent followed. By industrials. Materials. That's, pretty commodity, centric, there. Followed. By real estate financials. Broad, recovery, there across the board with. Some of the laggards, being today being consumer, staples. Education. Services, information tech. Being. Down a paltry, two are being, up a paltry, two percent, so. Be. A little facetious but, broad advance in the market at the, opening. Take, a closer look at some of the charts as. Far as percentages. /es. The. S&P futures up 3%. A crude. He. I believe. This is the July.
Contract. Up. 10%. At 32, far cry from. The expiration, last, month. Russell. Up, 6% so. Small caps, continue. In a recovery. As DAC, up, 1.8%. And, the. Any Dow /y. Em up. 3.6. 3% now you notice I didn't bring a contract spec, up for. /y. M which, is the Dow Jones mini, now the underlying, futures, contract, has, a multiplier, of $5. $5 per point. So. As an, example with looking. At ym. They, can bring up E. Change. And at percentages, there. You. Second, there. So. The the DAO mini futures up. 846. Points. 846. Points. Times, a multiplier, in the case of the. Board. /. A Ford / ym. That's four thousand. Two. Hundred and, thirty dollars that's that, leverage, there. 86. Points up or, the SP futures. Eighty-six. Times. 50, which is a multiplier, there. $4,300. So that's a significant amount if one was long the contract, be. Up about $4,300. Per contract, if. One was. Short the, contract, one, would be down. $4,300. So, you can see there's that significant. Leverage, there, and when. We go ahead and take a look at you. Know on the chart you, can go to futures. And. See. Some of the requirements. Or. The underlying futures, contract. Case. Of the dowel. Mini. $1,300. Or so I'm sorry. $13,200. Her, contract, is required. Betrayed. That now. That's not the amount that one can lose. It's, how much equity needs, to be tied up for that trade. /es. For, the S&P futures. -. Es. Arminius. 13,000. Now. This, fluctuates. Based. Off of volatility, her. Hand this conversation. Back. In number. January, the. Margin, was around, ina. Hug, maybe. But. It was glass. I'll be. Certainly. An issue a traitor's, Oh cap. A lot they trade the underlying contract and understand. Risk. Associated with that again this is not, risk. On the contract, is how much equity one has to put up one. Or, as. The, price move against, them based. Off of, price. Move that we saw today and, one can hit that margin, requirement, about two or three DS based. Off of that, move, that we saw today. A typical idea can happen. We. Can utilize. Options. Well design, some at risk. Similar, to our equity. Options. And. I and, sell, I, were. Spell, contracts. And. Define. Our risk. Rate. So, let's go ahead with that, let's. Take a look at some of these parts and how they are setting up, equity. Standpoint. Onto, our page. For a. Second. Mike may have moved. A little bit there. Thank. You for that hopefully you can hear me a little bit better. All right so I'm looking at is a daily. Chart of some. Of these indices, but, start off with /es. As you join me on some of our technically. Speaking classes. Talked quite, a bit of. Various. Price levels. That. Have been. Holding, here recently, in. The case of the SP, just. Drawing, a Fibonacci retracement. From, the high of the market earlier in the year to, the low, the. Market for the last several. Weeks has. It. Had a point of contention at this sixty one point eight level, out of, a make-or-break point. We, penetrated, that. Couple, weeks ago. Sold, off, bull. Stepped in rallied. Up making, a lower high and. Basically. Being, rejected, at that sixty one point eight well back prices, actually went a bit lower, before, rallying, back into. Thursday afternoon and. Between. The pause on Friday and continuation, to today we're up at that level again. Question. Is. This is going to be a lower high. Trade. Back in the range or is three a charm, and there's, a breakout of, the. S&P. Some. Traders may do they, may look for a trade, that may, be a little directional. Dissipating. That that price may break out or wait for that price to break out. If. They. Are inclined. To be a more neutral to bearish, they, may look for more, of a bearish strategy, let's, say an example of a short call spread. Or a long. Put spread, gonna. Be a little more directional expect the price to go down. That's what we got going on with the S&P futures. And forward, slash let's bring up the Nasdaq by comparison. /nq. Now the Nasdaq, has. Been. Of an out performer, with a, handful, of those stocks like Apple Microsoft Facebook. Amazon. Pushing. These markets, higher. Positive, today they. Got above their, two-thirds. Or Treisman quite a bit ago and. Still. Showing more of that characteristics. Of that uptrend. With, the higher highs and higher lows as, we, start off the week. We'll, get follow-through from Thursday's bounce a. Successful. Swing would be prices. To take out those highs. Whether. That happens today later in the week or there's. A fade and not at all. See, but the Nasdaq setting. Up relatively. Stronger, we, bring a Ford /rt why the small. Caps. All. Caps have. Struggled. Relative. To the broader market, in its recovery going. From the eyes. To the lows still. Reference in the Fibonacci, retracements. The. Russell is struggling at its 50%. Retracement. At. A similar. Resistance. Here we're pushing up on that level again.
Whether. This is again three is a charm and. The. Market, breaks. Higher, or. Fades. We shall see. It looked pretty ugly on Thursday, before kind of a swing back. As. We, can see with that. Now. With the /y, em again I mentioned before that we did have a contract. X on those. And I'll go, ahead and show you a reference. Possibly. Y. Just. Looking from a technical view still, much more range bound. Two-thirds. Retracement, up here been, kind of kissing along, that 50% retracement, as we've. Just been kind, of grinding, it sideways that's. Going back to. Mid-april. Then. Kind of see some examples, of winners and losers as far with. The co vid epidemic. There. Now, additional. Resources, for you on these. Commodities, that we're talking about today as. Well, as some. Of the ones we'll be discussing in coming, weeks. You. Can go to the TD, Ameritrade website a, quick and easy way is actually just going to TD Ameritrade, comm. Forward. Slash futures. And that'll. Take you to our futures, home page you. Can learn more about opening, an account and, applying for futures trading and, I. Put your attention here to available, products, I click. On available products. You can see some of the ones that we are discussing, here today. There's the e-mini nasdaq-100. There's. The e-mini Russell, mm. There. Is the e-mini, S&P, 500. Now. Here is the emini dow board. / ym, reason. Why we're not showing the contract specs for this example is. Creative. Options. There. Are currently. No. Tradable, options loose. Through TD Ameritrade, or, that emini, dow, if. That was to be updated, you may see that here, so, our focus in this class on defined risk are looking. For, or. Liquid, and. Tradable. Options. On some of these underlying contracts. You. Can see links. To metals in. Upcoming sessions, we'll talk a little bit about gold. It looks, like silver is optional, so we may take it closer to look at some of those, the. Energy market. There's, a Ford / CL brood. There's. Natural, gas, they're, both optional, so hopefully. Good reference for you there. And, let's go ahead and, go. Back to, the show, plants, that some of our questions here. System. Like, to thank Kent again for helping us out, or. On, the chat there looks like he's covering down on quite a few of those can, let me know if there's something I need to address. Here's. Your economic, calendar. Some. Things that traders, may be concerned about not only in equities market but also in the. Futures market when. It's applied to the, equity. Futures. And equity, futures options. Rather than around economic. Strength. Interest, rates and inflation. Now. We are, certainly in some interesting, times and. We can see that reflected in the charts as far as with the volatility, there, are things that are known there are things that are unknown as the. Economy, opens up. Goes. Without saying that many. Of, the economic strength. Factors, are. Off. That's, an understatement. The. Question is will. These numbers recover, is the market pricing, it in. Is there, more pain ahead are, we, looking at a V bottom a u bottom, a W bottom, as. Far as any, type of recovery, a. Lot, of you that look at the news concern, interest rates. The. Fed is. Operating. On all cylinders. There. Also seem. To be very. Transparent. In their, discussions. Fed Chairman was on 60 minutes I believe, yesterday. The. Fed minutes are coming out this week so we'll get some detail but they probably talked much, of that as well and, they're. Certainly out there in the, bond market helping. Stabilize things and also. Possibly. Keep interest rates in check which. Can have an impact on inflation. Consumer, prices producer, prices, and. What drops in crude. Typically. May have a positive impact on those prices being smaller but. There's also some supply chain issues as well those.
Everyday Items, may, be more expensive as, well. And we may get some gauges on, any improvements. By, on how some of these numbers like personal, consumption. Whether. That looks, to improve or not now to, see some of these reports you got to resources. One you, can go directly via the, thinkorswim. Platform. And up on the market, watch page up, at the top. Click on that I'm already on there usually defaults, to quotes. But, you have the calendar. And from here you can take a view of. Various, events now I have everything all of them unchecked except, for the Econo, day events, so. You can focus on. Various. Economic events, and you. Can see them listed on, the bottom as you go. Day by, day now. For. Some it may be a little. Confusing. On. The platform, because we do provide information, across. The board. Internationally. So. When you're looking at the very early, morning that, may be looking at European, if you're looking late in the afternoon that. May be more. In the Pacific region it, is regional, a lot. Of the us reports come out you. Know within a couple hours before, the market opens, up. Into, the market open. If we can see things such as housing, starts, coming. Up. Consumer. Price index. FOMC. Minutes. There's, gonna be some news I may be tied more towards various commodities and we'll cover them when we get in those sessions such as the Baker Hughes. Rig count. I would. Maybe a little bit easier is. If you go to the. PD. Ameritrade, website, and. Under. Research and ideas. There's a calendar here as well. Now this one here you would have to do it kind of day by day. You. Can actually. Check. The economic, events, and in. Brackets, it'll show you what major economic events. Are there, in brackets. And so. You know as we look during the week looks like Thursday. But a few reports coming out you. Can see and other, weeks on windows reports may come if you scroll down you. Can get a view of that. As we go into the rest of the week. You know saying, some housing market information between Monday and Tuesday. As. And. That can point towards economic strength, as we. Go, into Wednesday we'll. See crude inventories that, can.
Point Towards supply and demand if there's, a greater draw. That. Means you, know people. Are utilizing those, commodities those. Prices may also have a tendency to going higher. Going. Into Thursday. The. Jobless, claims will. See some reports from regional, fed. Areas as far as economic, activity, distant. Home sales leading. Indicators, and thus. Forth. Right so we can basically see, what reports. Are coming out that can have an impact on that, price action. Back to platform, here. Here's some of the considerations, for index, futures options and if you're already trading options on equities you, can use some of the same strategies for options and futures after all an option, is an option regardless. Of the underlying, asset. Now. Index, options, on futures can, be America, next aisle or european-style, the latter can only be exercised, upon their. Expiration. And learn, more about those contract, specs I mentioned about TD Ameritrade calm futures, also. The exchange. Ww. CME, Group calm, many. Of these contracts, are traded. One. Can go there for some additional information. Now. Let's. Go ahead and put in our practice. Trade. For today. Bring, up the chart. And. Say. We bring up. /es. You. Now, for example here today. I'm. Going to do an example of a. Do an example of a bear, call. Spread. Looking. At potential, that this range. Holding. Or not necessarily. Blowing. Up to. The upside, some. Traders may wait for some sign of a bearish candle, on a similar. To back in here. I'm gonna go to the trade tab. At /es. Apply. Some of the same principles that we teach, in our trading, options, class you're welcome to go ahead in. The education, tab look up options, and the trading options course covers. This similar strategy. Also. My good friend can I believe. Teaches. This strategy, on Wednesdays. At. 3 p.m. Eastern Time called short verticals, I in. Turn each, long, verticals, on. Thursday. And we do some of those here as well, dues, I'm gonna go ahead and look for an example of an, option that's out of the money. We're. Gonna look at a delta that's, somewhere, in. The 30, range. Thirty to forty so. Here we have thirty ten. And here, is the quotes. For this option what I'm gonna do is I'm going to right. Click on. The. Bid price that, option to, do a sell. Vertical. Now. Notice it says it's a potentially. $2.00 credit now there is a spread, on these. Options we may have to adjust for that. But that's not $2 remember. There's a multiplier, and usually. The multiplier would be shown here knows it says 1 by 50, that's 50, times that. Premium. I hit. To confirm in sin. It will show us the. Potential, gain. The. Maximum, profit is going to be the credit. Received. Though, a two dollar credit times a $50 multiplier, would be $100, now. The maximum, loss is going, to be that spread. Which. Currently is five dollars -. The credit which. Is two. So. Three, dollars, is the maximum loss times the multiplier, of 50, would be, 150, now, in credit spreads that are adding the money, the, return on risk no, is. The. Risk, is going to be greater than the potential game but. It is considered, to be a higher, probable. Trade probable. Doesn't necessarily, mean success. And that's why it's a particularly, possibly. A lower reward, there's. The cost of the trade which. Is going to be in. This case it's, a. $3.50. Correction. $3.00 per contract. That's. A spread so three times two six, dollars at, credit $94. Now if I go ahead and let's say. Position. Size this and this, is where we, can define the risk at the maximum loss. 150. And let's, say I wanted to lose. $1,000. On the. Next trade based off the size of the account, we. Can position size that accordingly, so let's. Say I go ahead and I take our. Calculator. I'll do it based off of 1500, which, I believe currently is about the loo under half a percent of my practice. Account here. I take, 1500. Divided. By the maximum loss and let's, say in this case it, is. 150. Then that means theoretically, I can do 10 contracts. Fine. Risk defying game. I can, go ahead and adjust this to ten contracts. It. Confirmed in sin. Notice. The quotes did change a little bit I'll, see if we can get it filled for, that. Buck, 75. As a multiplier, and I'm. Gonna go ahead and hit, Send. Looks like we got a fill on that. So. What. We'll do is we'll, manage this position, I go. To the monitor tab so. We currently have a credit, of about, two, dollars now one of them Matt we've already defined our risk, so. The. Loss is already taken care of we've defined, a risk on the trade which. Is going to be that $1,500. Now, we potentially have, a game, looks. Like we got two dollars on that so that's pretty good so our potential maximum game, is. That, credit received, that. Is two times, 50. Times. 10. So it's $1,000. Now. What we can do is keep. An eye on this and if this credit. Appreciates. Down. To about 80%, of that maximum, game. So. One thing, we may do is take. At $2.
Times. Let's. Say 0.8, 80%. That would be realizing, about a buck 60 of, that. Premium. Therefore. If. This, option drop down to let's say 40, cents. We could close out that position. And lock. In the majority, of that gain if that occurs anytime, between. Now, and the. Expiration. Which, right, now. Is about. 25, days out. Now, if we don't hit that profit, game we'll, take a closer look on possibly, scaling or closing out this position, as we're, within that last week, and, a week to ten days before, expiration you, may be able to preserve some capital or, lock in some moderate, gains. And there, we go that's where we're standing off right now as we, finish off this, session. Hopefully. You learned something, new today folks, what we did is we had a little time learning. About index. Futures and. Accompanied. Futures options we. Went over some of the contract, specs and we went ahead and applied it, by, doing a defined, risk spread, in. This case we did a short call spread, on. /es. For the next month, seeing. If the price will. Go down or, at least stay in more of a range we. Had sold the three thousand, ten strike. Which. Means if the price stays below that three thousand ten mark and is below there at expiration, we would realize a maximum, gain the. Price goes up above, there then. That can result in a loss with the maximum loss being. That, $1500. That we already position, sized for. As. We go ahead and take a look, at. Slides. One more time. And the. Discussion, as far as on American. Style versus European style it it. Depends on as. Far as with the contracts, being typically, cash-settled. We'd. Be usually. European-style. At expiration, an order double check on. Those contract, specs, we. Talk about some of the contract. Characteristics. Of index futures, hopefully. Transition, from equity options options on futures using. Strategies, that you already know went. Ahead we applied some defined, risk options, spreads talked.
About Some of those potential, entry, exit, and trade management techniques as we do each and every week most, importantly, we, determine, appropriate risk and position, size and make sure you consider doing the same as you, practice these. Trades, on your, paper money account and would encourage you to do so so, you can be. More comfortable and consider if Futures. Trading is, right, for you I like. To thank Ken, for helping us out on the chat, William, Alex Stella thank you so much. Linda. Jerry, remember. In order to demonstrate the functionality the platform, we had to use actual symbols, keep, in mind TD Ameritrade does not make recommendations. Or, determine, suitability of, a new security or strategy for individual traders any investment. Decision you make in your self-directed. Account, is solely, your, responsibility. So John McNichol signing off folks have, a wonderful, day and we'll talk to you again real soon item.
2020-05-25 07:05
