Leveraging Capital with Futures | Ken Rose | 11-5-20 | Trading Gold Futures
Hello investors, and welcome to our session here on leveraging. Capital, with futures my name is ken rose, and it's always great to be here to discuss investing the stock market particularly in this area where we can, use futures to leverage our available capital, see some potential. Larger gains as a result of that leverage but i also want to keep in mind that could also result in larger losses as a result of that leverage, market's having a good day today coming out of the shoots and moving strong we'll take a look at the market as well as other factors. Affecting these strategies, so let's go ahead and get underway here for today. And again welcome everybody here to leveraging capital with futures, just a little reminder you can follow me on twitter my twitter handle is at krosc. Underscore, we don't see the underscore, here but underscore. Tda, where i post things related to this area as well as other areas, of investing. And waiver scholars here today just a reminder that in order to demonstrate the functionality of the platform, we need to use actual symbols server td ameritrade does not make recommendations. Or determine the suitability, of any security or strategy for individual traders. Any investment decision you make in your software, account. Is, solely your responsibility. We also use a paper money application, here this is for educational, purposes, only. So keep that in mind and also we use the. And we use actual symbols as well so keep in mind this no we're not giving in, any particular, investment advice regards particular securities we're basically teaching you the process, here, to use and suggest and use the process rather than, recommending, any specific, securities, or, or, or possibly. Or possibly, suggesting, that any level of success we're having our paper trading account is something that would, that would be that you that would reflect in your actual live trading account because, again those market conditions, do change continuously. Here's the greeks right here in the event we get into. Possibly looking at some options, so just a little reminder there on the greeks. Here's a picture of myself in here for about 16, years i specialize in blending both fundamental, analysis, with technical analysis, i love to learn about this stuff, i love to teach this stuff and i also love to trade this stuff as well i'm a contributor, on the td ameritrade network i'm a chartered market, technician. And i work with things scripting building indicators, triggers and strategies, and the like. So our agenda here for today we'll take an overview we'll take a look at the overall market kind of get an idea of what's going on. We'll review existing, positions. And i guess you could say past positions, that we've entered we did enter a position last week and i did notice that. We were we were taken out of that position so we'll go ahead and do a review. Of how that position turned out, then we'll go through. Our list of. Futures, va, future, contracts. And futures, options that are available to us, and we'll look for some potential, technical, setups maybe talk a little bit about some intermarket, analysis. With the market moving up as strong as it is and approaching some resistance, levels, you know from a historical, standpoint what that could tend to. Lead to, with regards, to. Correlated. And sometimes, inverse correlated. Futures groups and also look to do, a potential. Uh, paper trade along with that so with that let's go ahead and get underway and to do that i'm going to bring up the thinkorswim, platform, here, i just want to check over the chat window, it looks like our sound's good and everything's going okay i want to thank michael fairborn for being here in the chat very knowledgeable in this area do feel free. To send any questions you have over there to michael as well also to encourage you to follow michael, on twitter he's got some great stuff that he puts over there i'm sure you'd be more happy. To chat in his twitter. Handle so you have access to that well, coming over here then on the thinkorswim, platform. What i have here, is a chart of the s, p 500, futures. And if i just zoom in over here let's, kind of zoom in right here and see we got going on you can see that we do have a nice, and some, some very nice movement here right. We came down. If you look here we came down by the way this is a this is a daily chart which individual, candlestick, represents, a day. We came down and we moved sideways, like this. Perhaps because, the trend that preceded, that movement there that that movement that pulled down the anticipation, was to get a bounce but instead of that, we broke further down.
And Then we started to get a bounce right here looks like we had a nice little, bullish engulfing, pattern if we look at. These two candles right here then we, continue, to move up it doesn't it doesn't look like we're currently at today's highest highs right now looks like, this is the high today so far this is where we're currently at right now so, a nice gap to the upside, here, okay, a little bit of a move to the downside, then a strong move to the upside looks like we're fading, just a touch. From today's, high. It is worthy to note with this movement to the upside, on the s p 500, it is taking us up close to. A resistance, level that would be our previous peak right. Here. Right up there and you can see if we if we look at today's high we basically went up and almost touched that peak. Before we before we pulled off. So. With the with the s p 500 moving up towards this resistance. Level. That's something, the question may be. Right and, and i i would say obviously one of the key technical questions would be are we going to break above that resistance, level and go up and create some additional, all-time, highs. Or is it possible we could come up and hit that resistance, level and pull back down and start trading, in a in more of a sideways, trend. You can see that along with this resistance, level let's zoom out a little bit so we can. Identify, things a little bit better you can see that we came up here this was a resistance, level up here as, well. And i believe that was an all-time high let's put it right there you can see, so we're not quite to an all-time high we could break that resistance, level and possibly, go up there, you also see we have a fair amount of sideways, movement that's going on up here where the market's, moving in a relatively. Wide, and relatively, wide sideways, range we've come right up here to the top. Now from a historical. Standpoint. It's not always the case, but there does tend to be an inverse, relationship. Between. Stocks in certain commodities, and and i would say one of the one of the commodities, you send to see this inverse relationship, is is going to be gold. You know when the when the market's, moving up and then generally speaking. Investors. Are feeling good about the overall economy, and the capacity. Of the underlying, stocks to continue. To provide, earnings, and earnings growth, which helps to fuel. Which helps to fuel the market to the upside. If there begins to creep in some. Some potential, concerns. With regards, to possibly, the underlying economy. And or that and and with regards to the stock market. Then there tends to be a little bit of a flight, to to harder, assets. Meaning commodities. And and sometimes, that, and sometimes, that that would be represented, by gold. Okay. So, so we might want to look at, at, gold as as maybe a potential.
Play If we if we if we look at some gold futures and we see that as the market is hitting this resistance, level up here, maybe we're seeing some gold that's gone down like this and possibly. You know maybe moving sideways, or finding a base we see some gold starting to move up like this, we may want to do a long contract. On gold here. Rather than move into something like this that is overbought. And and when i say overbought, i'm just i'm saying that from from a technical, perspective. And from a technical, perspective. If a security, is moving up towards a previous resistance, level. And at a level, where it has a where it has a little bit of a history of moving down following, that, that would typically push that security, up into, in up into an area that is frequently, cons, that is frequently interpreted, as being overbought. Like we could we could pull up some. Um some overbought, technical, indicators, down here like perhaps stochastics. Or perhaps rsi, and take a look to see, what they're telling us about where the market's currently at right here. In fact why don't we go ahead and do that i'm just going to add a study down here. And. Let's use. Let's just use. Wilder's, rsi, i believe it is. Now let's just go with regular rsi, right here we'll add this and. Add that selected, i want to make this so that we can see things a little bit better. So here's our oversold. And i'll make that, three wide. Let's just go with one color we don't have to make it super complicated. And overbought. We'll make this three wide. Sort of a can to color, and then our rsi. Line. We'll make that too wide. It looks like we've got some different colors here. Make sure they're they're on the dark side. Meaning it's just so we can see them on a light background so we'll say there. Apply there. And we'll say okay. And, if i. I don't think we're going to need volume, here so let's. Let's take our volume off of here just to clear up some real estate. On our futures. And we'll turn our volume off right here we'll say appliance, clay okay. Okay using i'm okay keeping the implied volatility, up there in case we're doing that but you can see right here where. The rsi, is moving up so this is technically, the overbought, area right here. And just because something goes up into overbought, doesn't necessarily, mean it's going to immediately, move to the downside. If we look right here we right here we breached up into the overbought, zone right here and you can see right here. There was a time when the underlying future decided, to retreat somewhat. Right here we came up here and we sort of. Peaked. Right at this point right here if i go right up here there's the peak in the market right there. And you can see that we started to move down along those lines, right here we're approaching that area we're not quite there yet up here we just we were approaching it but didn't quite get it right here.
And That would correlate with this little move right here and you can see that the market started to move down right here, so we don't know what the market's going to do but we know, looking at the s p 500. It has had a history. Of when it approaches, these previous resistance, levels and also gets up in this overbought, area, there's a tendency. There's somewhat of a tendency, for it to possibly. Retreat and move to the downside. And again sometimes when that happens we can see an inverse movement with regards to the goal so maybe that'll be one future we'll take a look at here today we'll take a look at gold. And the light. Notice on my charts here we've got bollinger, bands and we'll go into a little bit of an explanation. On those as well. As we're moving forward here today, we also want to take a look at the trade that we did last week, and let's do that i'm going to come up here to the monitor tab. And we'll come over here to account statement. So here's our here's our trade from last week and it looks like it looks like the trade did okay looks like we had some profitability. Right here. That would be our profitability. And it looks like we had one trade here. Um. On. This one on this one right here bitcoin. I don't i don't have pl year today i don't have anything on this one. Um i don't see that work, we can go over to activity and position see if we're still in and i don't believe we are i'm not sure if that order got filled. Um this, this trade right here that we did have some profit though that's on the that was on the one on the nike. Exchange, that we did. Let's take that and let's go ahead and do a review of that one, see how that one turned out. And to do that. We are in, account statement. And. I'd like to pull up here if i can. Um. Field orders working orders, account statements, like to have a little bit more of a history, here. Perhaps, if i do this. We may not have the same kind of data here on futures, sometimes, you get with. With. Stocks, and the. Like. Yeah i'm not seeing our history right there we can pull up the chart though and see what we got. I'll just take that out. Yeah. Let's let's go ahead and take a look take a look at the chart here, for. This one right here we'll come here more income. More, info. And pull the chart. So here's our chart right here, and, you can see why why we why we had some success here the stock this is this is taking somewhat of a, meteoric, rise as well, now we're currently, out of the position. So because level because futures, are leveraged, we decided to manage our risk by putting a stop in. So when we entered the trade i believe we were down i believe we actually entered the trade right here. On this day right here. And notice the very following day we took a huge move to the downside. But it didn't kick us out of the trade. How do we know that because, because the trade is currently showing a profit. So we were down far enough here where we were not kicked out of the trade, one of the things we did do on this trade is we actually created a trade where we had more risk than potential, gain. And we decided to take that. Stance, just from a statistical, standpoint. When you enter a trade if your stop loss is further, let's just say let's just say this is the price of the underlying security. If you have a stop exit. That's down here. Versus, a target. That's right here. Purely from a statistical, standpoint, you're more likely to hit your target.
Then You already come down here here and hit your stop loss. Why just just because of the distance required to travel and if you're trading with the trend. Then that can help you out as well, with regards to this relationship, here we we may do that again here today we'll see. With regards, to. Trades that we're looking at it is a little bit i'm going to come here to the monitor page. And. Maybe if let's shift here from all accounts, let me do this folks who would like to get, let's come over here to margin, see that. There we go that looks like that gave us a little bit more detail. Here's our order history. And. Let's go back. 10 days. And there's our there is our order history so this is where we bought the future right here. We came in here and we bought it here at the same time we did it we did a 1 cancels. One cancels, other orders. And one of those one of those orders was a limit order notice right here we have limit. And we set that limit saying you know what. We're okay getting out of this, as long as we can sell it for this amount here the. 20. The, the level of twenty three thousand seven hundred so this is where we entered. At twenty three three oh five, we had our limit order that got triggered we also had a stop order down here. And that stop order was it was at twenty two eight sixty. That one was cancelled, here. And the reason that that one was cancelled, is because this one came in and was filled first, i just want to double check, i'm not i'm not absolutely sure i want to double check the distance between these two. As far as how we set that up. So. Our stop order here. Let's first of all put our our entry right here we entered in at 2 3. 3. 0. 5.. I want to find the difference between that where we put in our stop right here which was. 2. 2. 8. 6, 0.. So we set our stop at, 445. Points, away. And our limit order. Was sitting here at, two. Three. Seven. Zero, zero. And what distance is that from our entry right here two three, three. Oh, five. And that was 395. Yes or. So we set our target. We set our target closer to the price. Then we set our stop. Which, which isn't in which is an inferior, reward to risk ratio but from a statistical, standpoint, it does put you in a statistical. Place. You're more likely to hit your target than you are to get stopped out however. There's a lot there's a lot of volatility, and everything else and this, position, came very close. To stopping us out here, on this movement here that we had down here. Just to point that out here. This the very next day after our trade we came all the way down there wasn't quite enough to trigger our stop but but it was quite the move to the downside. Of course there's always going to be uncertainty.
Well With the market doing what it's doing then we had a little review that, taking a look at that i think one of the reasons we decided to enter that one is because it was an offshore. Um. Index. But you know in looking at it there was still a fair amount of correlation, you can see with the movement there's been a fair amount of correlation, as well. Okay, so let's go ahead and look at some potential. Um, some potential, new entries, something else potentially put in there that we can follow up on. And to do that. I'm going to open up our, this is a listing of our futures, contracts. That, what i did is i just went in and i i, put all the futures in here that are available, on the thinkorswim, platform there may be additional ones that are available. That i was not able to bring up here, but i'm okay looking at these and just looking, primarily, trading these based on just technical, analysis. Also taking into consideration. Some of the some of the inter-market, relationships. Okay, i do want to i do want to explain the bollinger bands here for just a second because we may use this as well. As far as as far as looking at some potential, trades. Basically, what the bollinger, bands, are, the bollinger, bands if you. Perhaps some of you are familiar, with the normal distribution. Of data. It looks something like. This. Now you got this bell curve right here. Okay. Where most of the data. Falls in the center right here generally, speaking. Okay. Then as you get further out here you get less and less data you get further out here you get less and less data okay, this is this is like the normal distribution, of data. Going out to standard deviations. Which basically means. Um, most of the data is going to fall between these two points occasionally, we'll go out of there but but, but we're usually going to stay within this point. Well if we use price. To create a normal distribution. And then we we kind of flip this over, okay. So this, center right here. Rather than looking at it horizontally. That center. Is this moving average line of price right here. If we flip that on as if we flip that on site so that's the center well then we have a normal distribution.
That's Kind of going like this. Okay, and that's basically, all the all the bollinger, bands are, it's just the normal distribution, of price data. Moving along the chart with the center line at that moving average line right there. So from a, statistical, standpoint. When we move out of it like we did over this series. You know there's a tendency, for it to pull back in, within it. Another, another thing another way that this is used from a trading perspective. Is that. When these bollinger, bands. You know this because this is a normal distribution. As the bands get tighter. Like right here. That means that means that the price, is not as active. Okay or not as volatile. As was as when the bands are very wide over in a section like this. So if we wanted to use options. To trade. And we wanted to capitalize, on some on some neutrality. We may want to look for some underlying securities, for the bollinger, bands. Maybe they're going like this but recently. They got like this but recently they've closed up. And they're starting to move in a tighter zone. They're starting to move in a tighter zone there, we may consider doing options, perhaps, a an option trade review. Where you sell some options down here and makes you sell some options up here sell some options down here, and look to capitalize. With the underlying, security. Continuing. Continuing, to stay in this neutral, mode. But before we do that let's come over here and take a look at some of these i'm going to i'm just going to cut to the chase here let's go to gold here and see what gold's doing. I'm going to come down here and click on gold right here. And you can see that it's it's kind of interesting to see gold here right. So gold has. Has been moving up with the overall mark but you can see gold's, breaking above this resistance, level right here. Now one of the things related to gold again just from historical, standpoint. There does, tend to be, from historical standpoint. Of movement of investors. Into gold if they feel a little bit more uncertainty. With regards, to, not only the underlying economy the united states but with regards to, economies, worldwide. Gold also, tends to be sensitive to the us dollar as well. So if the, if if the dollar you know because gold is generally, valued, in dollars if the dollar starts to slip and move to the downside we usually see gold move up, in comparison, to that, and and there tends to be, a, vice versa relationship. In relationship, to that as well, what we'll do here today though is is for our first trade here we'll play the part of the investor. That is looking at the market. Going up and and reaching up to some of those resistance, levels. We have gold going up as well. But we'll be looking for gold to maybe, maybe be a little bit more likely, to continue, to move to the upside. Versus the overall market because if the market does start to pull down. Um, and and it's because of concern about. Because of the mounting concern with regards to worldwide events we'll look for gold to maybe have a little bit more resiliency. With regards to a continued move move to the upside. So in doing that then and wanting to manage our risk. How would we set a trade up. Well. One thing we can see here is that gold today is breaking above this little resistance, level right here. So that resistance, level now becomes, a support, level. So we want to identify, maybe some targets. Continuing, to move up right here, so to do that i'm going to zoom out of this a little bit just so we get a wider view, maybe we come over here to establish, this you know we came down here we're moving here now we're, now we're sloping up here we're breaking above this. Let's use this area right here. As our next target these hydrogen, because we're going. Because we're just going to do a. A long contract, i'm going to go ahead and go with those highs right there as being our target so that will be our target to the upside.
And Let's just let's just measure that distance here we use a. Little box we'll just keep it simple. Okay. So there is our target to the upside. And let's and and with regards, to set with regards to managing, our risk to the downside. We've got a support level down here right. If i come down here. This is a support, level. I want to change my drawing tool i don't want to use the rectangle. We'll come over here and. Grab our little drawing tool right here and. That is going to be our support level right there, and right now we can see our support, if we're going to set a stop loss relative to sport we're already further away. Okay from where we're at, and we'll continue to continue, we'll continue, to play that now, keep in mind if we as we continue, to kind of use this strategy right here, we want to keep in mind, is we need to be successful. More often than we're unsuccessful. Because when we're unsuccessful, we're going to have a greater loss than when we are successful, so that's that's that's that's something to keep in mind on these. But there's our support level let's go let's look at a an average true range right here. And let's come down a little bit a little bit further below that support level just give it some room maybe to come down here maybe it'll bounce along here. And continue to move up that's a possibility, but, let's give it a little bit of room below that and to do that, i'm going to use the average true range right here. And the average 2 range here is 30.. Why don't we go with. On this trade because, fair amount away from that relative target, let's go with 50 percent. Of the average true range. Below that support level. And to just so we can see that support level i'm going to right click on it and come up here edit properties. And let's say we want to show that on the right here. Okay. And our average to range again is currently sitting at 30. there's our. 18662. Is the is a stop loss level. And bringing up a calculator, here. Then. Let's take our average 2 range of 30. i'm going to multiply, that by, 0.5. So we're going to come 15, points below this level so i'm going to subtract. 1. 8. Six six. Point, two. And so we've gotta stop then at one eight, five, one. Point. Two and i'm just going to jot this down that's gonna be our stop. Then, where is our target, here. Pull that up let's, also edit these properties, let's show this one, over to the right. So that so that's our target. Okay. So we're going to target up here at, 1984. 10 and a stop loss down here at, 18662.. Now we want to we want to just ascertain. Our risk on the trade, relative, to our potential, profit. Given where it's currently trading at here at about 1949.. So we'll use. We use current level there 1949. I'm just going to jot that down. 1949.. And. I'm going to come up here because what we want to do is is we want to check what our point value is on this i believe it's like 100 bucks well let's just double check i may not be correct on that. So here we are so we've got. The tick size is ten cents. And the tick value, is ten dollars. So there's there's going to be ten dimes, in a dollar, right, and each one of those dimes is ten bucks that's going to be ten times ten bucks is a hundred dollars. So each point. Is going to be worth, one hundred dollars on this. So with that in mind let's. See how we're doing with regards, to risk and the like. So if we enter in, at. 1949.3. And we get stopped, out, at. 1866.2. We've got 83, points i'm going to times that by 100. And so we're looking at risk here to the downside, of 8. 310. So we'll ask ourselves are we okay with that risk if we're not okay with it then we'll say hey let's cancel the trade, now if we wanted to we it looks like we could we could go with we could go with some micro contracts, here that would be a possibility.
We'll Go ahead and play the part of the investor though that is going to be okay, with this amount of risk on this trade. And the second part we want to look at is we want to look at our potential, profitability. Moving up here to the upside. So if we put in our limit order and we get taken out at one thousand. Nine hundred and eighty, four. Point, ten. And again we enter in it. That that number's moving around let's it was 1949. Earlier wasn't it i think it was like, 1949.2. Just to keep apples to apples looks like we got. 34.9. We'll times that by 100, all 100, dollars per point. A potential, gain moving to the upside then, of three thousand. Four hundred. And ninety dollars. So our reward, on risk then on this one just looking at these rough numbers then we've got that, as our potential, gain and our potential, loss. Eight thousand. Three hundred and ten. Is going to be. A reward on risk of about forty one percent. All right so, um so so we understand what our risk is we also want to keep in mind. That our, our stop isn't necessarily. Going to get us out at the stop level stops. Stops tend to do a fairly good job they're not perfect you know, futures can gap, and they can move very quickly. They can move past our stop loss so it's no guarantee. With regards to our risk but but we but we did measure it and we and we did and we did take it to take it into some consideration. There. I'm just going to run that number one more time it just seemed. Let's go one more time 19. 49.2. Minus. 19. 84.1. Times. 100.. All right that looks good well i'm not saying i'm not saying it looks good i'd like to you know. I mean it's, it, it, it looks good with with regards to the accuracy, the calculation, that we have right there. Alrighty. So, let's come over here then folks i just want to come over here and. See how we're doing it looks like we're in good shape. We'll go ahead and put our order in we'll do it a one cancels, other. And we're our limit orders then is going to be at. 19. 8. 1984.1. And our stop order is going to be at. 1866.2. Do right click here, and i'm going to choose by custom, with oco, bracket. And let's collapse this, guy right here. So there is, our, order right here to enter in. This is going to be our limit order we want our limit order to be gtc. And the limit order we're saying is. Okay we're okay getting out at. 1984-10. Given the opportunity. 1984. 0.10. Now because this is a limit order. This should be filled at this price or higher. Okay, it's basically saying okay, i want to buy it as long as i can get, as long as i can get it at, 1984.10. If i can't then i don't want to buy so if the technology works out okay, this should be a good solid number where we come in at this point or higher, the stop is not as solid. Okay. Let's go ahead and put our stop in here we want to make this good till cancel. And. Our stop price. Is going to be, the. 1. 8. 6 6. .20. Okay. Now this this is this it depends on how fast the market's moving down it depends if we get some kind of a gap or something. Whether or not this this is going to hold tends to do a fairly good job but it's not perfect. Notice notice what this order does on the stop order, is a stop order, right here, when we go down and hit that price, what does that trigger. It triggers a market order, this is okay. I want to sell it at the current market price. And so that so it's going to be a market order but if we gap down that mark order could be considerably, lower than this point. Right here where this says standard. Some traders will change this to mark. And the reason for that, is that. Mark is something that's calculated. On the thinkorswim, platform. So so it's, so it's, it's, not as easily, picked up by market makers if you're a little bit. If you if you want to take extra measures to avoid your order being seen out there by market makers, you might want to choose mark here just that has the potential, to hold it on the sidelines so it's not as easily seen.
By The market maker if the market maker may be trying to push something down or push something up i'm not that. I'm not that paranoid about market makers i'm not saying it's paranoid, though i'm not saying it's not a reasonable. Consideration, but if you wanted to set that at mark you could, that would just set that stop loss at the halfway, point. Between, the bid and the ask price, on the underlying futures contract in this situation. Okay i'm gonna i'm gonna take our lock off here and now because this is paper money sometimes we get filled on these and sometimes, we don't. We'll see what happens, the one we sent in last time we got filled on so, we got looks like we got our eggs in the basket here okay. 1984. Um. 0.1, i've got a 0.3, there let's change that to 0.1. Okay. And our stop is at. 1866.2. That moved up to 4.. Yeah i think i sometimes i think when we open up this, this um. Lock it automatically, makes some adjustments, here, we'll go with if they want to make little adjustments, here we'll go with that okay, so we've got that set up let's do a confirm. And, send. And. Hey we got filled okay so we got filled on that we'll go ahead and follow up on it notice that the the chart here is showing us. Where we're at in relationship, to our target up here and we're at here in relationship, to our stop-loss, down here as well. Okay so with that then let's come back over here then we've, still got some time here. And, let's let's look at something in relationship, to bollinger, bands just kind of reinforce, what we're talking about in relation to bollinger bands, with the. Looking looking for possibly, one of these securities, where there's a tightening, it's it's interesting, and one of the reasons i was looking at gold here, is because gold notice its bollinger, bands has come down here. Which would make it more of a sideways, trade. But because we're breaking, out of the bollinger, band right here. I, that i thought i thought i thought it might be a little bit more in tune to play the part of the investor, that's looking at that as a breakout with the target up there to the upside. But we may see other. We may see other metals as well that are cramped down like this that are not breaking out that may be a possibility. Or we may see some other futures contracts, just in general. So i'm going to come up here, and. Let's go through these i'm going to go through these relatively, quickly i'm going to shorten up the time frame on our chart. Just so that we're zooming in on most recent price action to see what's going on. And see if we can find another, technical, setup here. Okay and i'm going to just hit the down arrow key here so we may go through these relatively, quickly. In the effort to find something or maybe we won't if we're going to have a technical, issue, it looks like we're good there how about my down arrow key there we go, again folks i'm going to go through these relatively, quickly we're seeing on a lot of the indices, basically the same type of thing. We're going up there looks like the. Looks like the queues are a little bit closer to their resistance, level up there than some. Looks like the russell maybe broke above. So that looks like that's the that's the russell micro it looks like the russell's, actually broken above a resistance, level up there. There's our gold trade. That looks like the micro, on gold. So this is interesting, you know we have oil coming up here. And just, showing some weakness here and possibly, moving to the downside. In a downtrend. And you could you can see that the bollinger, bands are currently, opening up here as we're coming up here and finding that as a resistance, we could actually look to do, a potential, put option on that. I think i'm doing a put option on that that we may want just a little bit more condition, like we've come up here and we're rolling down, probably like something that's called a dark cloud cover.
Or Even or even a a bearish engulfing, pattern. We're a little we could be a little bit premature. On that one that may be something that may open up for a berries trade a little bit later on, here on natural gas we pulled down to possibly, a bounce, area. And, i'm just going to come over here and click because i'm getting some just kind of some sticky stuff here. Here's our bitcoin, we tried to put that in last week but we didn't get filled it looks like that would have been an okay trade it looks like it's continuing, to move up here today. Um. A little bit of a pause. I'm just curious, if we wanted to. Do it on time we got some time here. See bitcoin was kind of banging it kind of banging up, up here over a period one two three four five days so we have a nice little break out here. But we're way outside those bollinger, bands. Let's play the part of the investments, looking for something a little bit more conservative in other words, something more along the lines but pull back on a bounce. Before. Taking something like that. Let's scroll down here and see. What we got here. Let's come down here to silver i think i was looking at silver here a little bit earlier today. And. Yeah those are those are pretty tight. There. Silver, so you can see that you know this is kind of what i'm talking about bollinger bands, so we're moving up here in silver but we're not really breaking through the bands. So what if we could do a, an, option, trade. Here. That. Would and it's sometimes referred to as an iron condor for those who aren't familiar with options, i'll explain a little bit okay. But a situation where we're taking advantage, or. Attempting, to take advantage. Of this kind of settling, down here. And this sideways, move right here, that, would give us an that would give us a neutral, trade. On metals to go along with our more aggressive, trade on on metals, with with regards to gold. Okay, but we can we can we can structure, our neutral trade. In such a way that, if, if the metals go in. In such a way to give it plenty of room. To move to the upside, and or the downside. And have a probability. Of success. That could be greater than 50, it could be greater than 50, again it's probability. It's a theoretical, probability. Um, this is the smaller, contract. Let's look at this one here. Let's see we got here. Forward slash. S i for silver. This is the this is like more along the lines of the. Of the, uh, wider contract with it but the same with this the same kind of situation, you can see here we're moving sideways.
So Why don't we do that we could have a little bit of time here so, we'll do is we'll do what's called a. We'll do two. Short vertical, trades. These are sometimes, referred to as iron condors. Okay but basically we're going to do is we're going to sell options. We're going to sell options above the current price. And, we're going to sell options. Below the current price. Remember when we, when you sell an option you actually want the option to lose value. For this particular, strategy. You're looking for that option to lose value because you're selling it, and if it loses value and you need to come in and buy it back at some time, then you're buying it at a lower price and you sold it at you know you're basically, buying, low and selling higher just doing it in reverse order, you're selling high then you're coming back in and buying low, or there's also a possibility, that the options could also could also go all the way down in value. To zero if they go down a value to zero then you don't need to come in and buy them back. Now in, selling these options. We also want to manage our risk so. We're going to be we're going to be selling. A more expensive. Option. Okay. We're going to be selling the more expensive, option, but then to manage, risk. Okay. We're also going to buy an option but that's going to be less expensive. And we're going to come up here, and. Buy an option but that's going to be less expensive. So because what we're, buying. Is less expensive than what we're selling. Those two transactions. Result in a credit. Those two transactions, right there result, in any credit right there, okay. Now if you wanted to if you want to get a little bit more, information with regards to this particular strategy. There we have an act we actually have a session, i believe the session, is on, um. Is on mondays. Hold, up i'll see if i can find it here. But we have a session, on. On multi, on multi-leg. Option strategies. Okay that goes it goes into a little bit more detail with regards to particular strategy we'll go ahead and set it up, and then, as the trade goes on i'll spend a little bit more time explaining. The details, of it, and, why it was successful. Or why it was not successful. And. And those kind of parameters, as the trade goes on, okay. But let's first of all let's pull up the option chain here let's hope we have an option chain here for this these guys, it looks like we do we don't have a whole lot but it looks like we have 19, days right here. So let's open up the option chain right here. I'm going to collapse this for a moment. And, i want to get a lot of strikes, let's go with like 50 strikes, here. If we've got them that looks like we do. And i want to have a delta column because our delta column is going to give us an idea of our probabilities. So we'll come over here. And, there's our delta column. And we we, want we want to sell an option that has a low probability. Of being in the money on the expiration, date because if it's not in the money on the expiration, day. Then, our trade is likely going to be successful. When i say in the money that basically means that the option has some value, on the expiration, day. So for example this option right here, has a 24.
Probability. Of having, value, on the expiration, date which means it has a 76. Probability. Of being valueless. That's what i'm talking about we we want to sell something that has a higher probability, of becoming, worthless. Rather than having value on the expiration, because we want to buy something that's going to become worthless. And since and what we'll do is is on the options we're selling. Because we're going to be selling on both sides. We want the combined, probabilities. To be less than. To be less than 50 percent. So this has a probability, of 20 percent. Of being in the money. Okay and this these ones here are the put options they're going to be below the current price. And we'll also look to sell something, in the, in the 20 to 23, percentage, area, on the other side so the two combined. Will be maybe, 40, 45, 46, percent. So there's a 46, percent probability that these options could have some value, but a greater than 50 percent, theoretical, probability, that they will not have value. So, why don't we come in here then, and. Let's go with the 22, right here. And we'll keep these why don't, on these let's let's do let's do two white on this so. Can do a right click here. And, we're going to choose. Cell. And i'm going to come down here and choose deep and wide. I'm going to go one month. To. Strike prices. And we're going to come down here and choose iron condor, that's what it's sometimes, referred to. Now. The one that we just did this is on the put side. And that has a delt of 22., so we know that our puts are okay here but not the calls, okay we don't know the the calls, are just placed in there to be somewhere in the same area that put on the other side of the option chain but that's not what we want. So we're going to come down here on the call side then. And. Find a delta, over here. That is like in the low 20s. And we'll adjust our strike prices here so. Let's see if we come over here here we are in the 20s so, let's come over here on the call side we'll do a. Um a, 2750. 28. On the call side so. Let's find. 27.50. There's 27.50. Right there. And. 28.. Come in here and find 28.. There's 28, right there, okay. So let's just double check so it looks looks like we we want to be 50 cents away, here. On both of these so. Um. Let's see 27, 50 28, this is 2360.. This is a dime. Maybe we don't have when we get out here maybe we don't have the. Flexibility. On the call side, what's our puts. Let's come back up here and double check our puts here. We're selling, 2360.. Yes there's 2360. Right there. And. That's a nickel that's a dime so there's only a dime wide which which is okay there's nothing wrong with that. But the call side, that is not going to work out, we want to do 2750. 20. 27, 50. 27. 60, right, if they have it. 27.50. Yeah you know what i've just not seen it there. So maybe this isn't going to work out in the time we have here folks. I'm just looking at our time here and we're running out shortly, and we don't have the same. Versatility, over here on the call side so. We're. We're 50 cents can we move this one out so it's 50 cents can we change this to a.
A 2350. Here. 23.50. And. 24. Just to keep the. Same. Um nope that's not going to work, hope that's because. We need to be actually this would be a 23. Actually. Okay so we're 50 so we're 23, 50 23. And. 27. 50, 28, it looks like we're 50 cents wide right here i just want to double check and pull this up and take a look at it on the analyze, tab to make sure it looks right. I'll do a right click and we'll choose analyze trade. And we want to look at the risk profile. That's what the iron condor is supposed to look like so we're good on that. So let's come back over here. And let's let's kind of assess this a little bit we're running a little bit short on time, so basically what these what the silver, what the silver futures are. Each contract. Controls. Um. I believe i believe it's 5 000 at i believe it's 5 000, ounces, of silver, or something along those lines i think the multiplier, on this is 5 000.. If we see it right here we can see this value right here. Is, going to be my mouse is, kind of not, cooperating, right here at the point, right there you can see our multiplier. Right here. Is. 5 000 bucks. This price right here these strike prices. This is the price per ounce, of silver. Okay that's the per ounce of silver. So we're going to use a 5 000 multiplier, here because you're talking about. Each contract. Controlling. 5 000 ounces, of silver okay this this this is the per ounce price right here, 28.50. So, what is our what what is our gain here what's what's our max gain right here looking at this contract, well our max gain. I'm just going to go ahead and lock this up right now so we can look at it with some consistency. Our back screen is this credit of. 1.149. So if i take point. 149. And i multiply, that by 5000. That would put our max gain here on this trade of. 745. Dollars. What is our max loss. Well the distance, between our strike prices, is what it's 50 cents. Okay it's 50 cents so. If i come in here and. Choose point five, and times that by. Five thousand dollars. That's going to be twenty five hundred. So what's going to be our return on risk on this trade well it'll be our. It'll be the the 2500. Is the distance between these two right. So we need to take the 2500. We need to, subtract, from that, our 745. Dollars to get our max loss. So subtract, from that. 745. Dollars. So our max loss then, is going to be. 1755.. So our potential, return on risk would be. 745. Divided, by our max loss. Of. 1755. Gives us that gives us a potential, return of 42, percent. Over 19, days. With a probability, that is greater than 50 percent, okay with a theoretical, probability. Let's double check our numbers, to do that we can come over here and click on confirm, and send. And we want to see our max profit that matches up to our max profit of 745. Max loss that matches up to our max loss of 17.55. So again these, these are theoretical, numbers let's play the part of the investor that's okay with risking, five thousand dollars on this trade. So if that's the case, we're okay risking. Five thousand. And risking, seventeen, hundred, and. Fifty five. Like we can do two of these. So we'll go ahead and do two of these. Right here, now notice our price here, is the mid. Is is it is a 0.149. But the mat the naturals, all the way down here at 0.115. We'll go ahead and get try to get filled with the mid if we do great. If we don't we if we don't we'll go ahead, and come down a little bit and then try it one more time okay so, do a confirm and send here, margin right there we'll go ahead and send that in.
Reject, It oh looks like this is not one we're able to trade in our in our futures trading account probably because we're doing options okay. So. Um, nice exercise, going through and looking at the contract, and everything else but some of these in our paper trade account we found we couldn't trade them i'm thinking we could probably trade the contract but we're not able to do options, we are able to do options, though on some of the indices, over here i know i, believe you've been able to do those in the past maybe we'll look at, looking at this same process, using the bollinger, bands we'll look for some of these indexes, to settle at some point in time, all right everybody let's go and wrap things up i went a little bit long today apologize, for that but i didn't want to get through, what we wanted to do here, so what did we do here today. Well we did an overview the market we reviewed our position from last week, we looked for setups for new positions, we opted to go ahead and enter in a long position on gold, looking at the markets going up and, approaching, resistance, levels, okay. Possibly we bang up against that resistance we're looking for gold to be a little bit more resilient. Resilient. Particularly, if the market pulls down we know that that tends to be the case historically, but it's not always the case historically. And that led to our paper trade right there. It's just a reminder, again folks that, you can follow me on twitter my twitter, handle is at krosc. Again we don't have the underscore that'll be underscore. Tda, also michael fairborne, thanks to michael being over there in the chat window i'm sure he can send you out his twitter handle, as well, so you can catch that, and also just remember that in order to demonstrate the functionality of the platform, we need to use actual symbols however. Td ameritrade does not make recommendations. Or determine the suitability, of any security or strategy for individual traders. Any investment decision you make in your self-driving, account, is solely your responsibility. Thanks again everybody for joining us here today for leveraging, capital with futures best of success you're investing. Um hope to see you next time, and also just reminder to be careful and safe out there let's be safe and, and get through this whole culver thing as happy and healthy investors, on the other side thanks everybody. And we'll catch you later thanks again we'll. See. You.
2020-11-12 12:54
