Trading Futures | John McNichol | 5-3-21 | Grain Futures Options
good morning everyone welcome to another fantastic week of education with td ameritrade and you have reached trading futures we got a little snap crackle and pop as we start the week we're going to discuss grain futures so stick around [Music] all right hey and a great good morning to everyone here that's with us live today such as eday vj marcelo we got les terrance mike mack simi and ricardo charles frank v cast surrender thank you so much for being with us and those of you that with the archive session listen to this recording do appreciate your support each and every week if you like what you're learning here today make sure you click like for this video and also subscribe to our trader talks you know you can also share those videos too with some of your trading friends or anyone who's interested in this content we have ken rose helping out on the chat any questions i am unable to get to uh feel free he'll be able to help out he also has a futures class leverage in with futures uh i get confused on the day we'll double check that on the schedule i i know it's on wednesday or thursday in the afternoon uh he has some great sessions there let's go ahead and take care of disclosures we'll get right into it folks presentation is for educational purposes order in order to demonstrate the function out of the platform we will be looking at actual symbols you might maintain ameritrade does not make recommendations or terms suitability of any security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility futures and futures options trading is speculative not suitable for all investors as risk disclosure provided for you futures futures options trading services are provided by td ameritrade futures and forex llc those trade privileges are subject to review and approval not all clients will qualify now keep in mind spread straddles other multi-leg option strategies can often involve greater more complex risk than single-leg option trades as well as multiple commissions and as always folks all investing involves risks including the risk of loss while asset allocation diversification does not eliminate the risk of experiencing investment losses here's our topic for today some of the characteristics of various options on commodity futures those you've been joining us in previous weeks we had discussed uh index futures i believe a couple weeks ago we covered down on energy and gold the previous week and now we're going to go ahead and talk about grains and in upcoming sessions we'll discuss treasury futures currencies and the like we'll show you some of the resources for economic and government reports may have on some of these grain futures and also discuss risk define risk spreads and position size and some very similar that instructors such as myself and mr ken rose do on our verticals class both long and short and other types of spreads that some traders may consider utilizing some of the things you already know with the options market and as always we'll talk about potential entries exits and trade management techniques here's some of the compare and trading options on futures and options if you're new to this webcast feel free to go ahead type in the chat let us know that you're new want to feel that you're welcome like i said over a part of this series we're going over some of the more widely traded option contracts or future uh futures and futures options that are more widely traded and available at td ameritrade we'll also get into technical trading once we complete this series typically utilizing some of the index futures so as you see the comparison options versus equities one of the attractions on futures is the access to other asset classes not just on the indices but energies interest rates metals currencies and agricultural we're going to focus on that ag today whereas on the equity side more primarily focused on the indices and equities themselves another attraction on the future side is the capital efficiency margins a little more dynamic more riskier or should say more volatile futures would have higher margins less volatile would have less margins the access to 24 hours a day six days a week typically from sunday evening to uh friday afternoon one can see these traded on both the equity and the options uh just kind of a little sidebar as we bring up the thinkorswim platform for instance uh the s p futures we have the micro contracts on the screen right now as i just kind of zoom over you can see the intraday activity that shaded area is the overnight outside of regular trading hours and uh market is uh starting off the week uh strong after in a little week or last week but still positive for the month of april a lot of investors uh or pundits speculating you know are we looking at uh selling may and go away well as far as the market open that hasn't started uh that is a bit of a a historical reference as far as the months of may to october uh underperforming other parts of the year i believe to the tune of about 66 percent and not necessarily that it's negative but the returns uh lag i think the average is about two and a half percent um and also the likelihood with a 20 run in the market that we've seen uh from the previous uh quarter uh going into uh or should say from november uh going into this uh period there may be an increase in likelihood however no certainty but even on the overnight prices held both the daily and weekly pivots on the s p this is probably one area that some traders may be keeping an eye as far as the pivot between the bulls and the bears to seeing if those bulls hold throughout the week a little resistance on on the upper pivot there at the moment but still good all over all trends we'll look at the same thing here on some of the commodity futures as well another attraction for those that are very active trading although not an endorsement of day trading there is no day trading rule so in some of the more actively traded contracts like on the indices some traders may focus on those very liquid contracts the other thing we need to understand as far as with expiration what happens to those contracts when they are done trading now as we teach in equity options we're typically looking to close out those positions before expiration and that wouldn't be different on the commodity side but in the case of a futures option it would settle in the underlying futures contract which can expose one to more risk and additional margin and it's important to understand when those future contracts expire because if you do have an underlying futures contract that may be physically settled uh in a underlying commodity such as grain or should say corn soybeans wheat td ameritrade does not allow physical settlement of those contracts so if one does have a underlying futures contract that may be liquidated at any time although it doesn't remove your responsibility of managing your positions on the thinkorswim platform there is an area called futures liquidation so if you one did let's say had an assignment or an exercise of a future option topic we're talking here today and results in an underlying future one can see and if they and if you chose to hold that underlying future now one would need to know when you'd have to close it out or serve or be tied to some liquidation and so there's a check box here for futures liquidation so if i typed in let's say one of uh contracts we'll talk about today such as corn i can type in zc and we can bring up let's say a monthly view of uh that contract and let's see here maybe have to go to the next month here and you can see where the liquidation date is for that commodity usually it's about i believe two days uh before the actual expiration and we'll learn a little bit of that here today a little public service there for you and so let's talk about some of the contract specifications uh we'll look at some of the contract specifications folks uh what we'll do uh after that is we will go ahead and bring up uh some of the charts uh seasonality uh of uh some of these uh different instruments and it will also show you some of the government reports as a reference for you and let's go ahead and do that so starting off with grains forward slash zs for soybeans and we're going to see some similarities between these so not a huge difference the multiplier is going to be 50 now this gives us an idea of what the leverage is for that particular contract so each point move in the soybeans forward slash zs would be fifty dollars fifty dollars times that premium uh tick size uh each uh tick is an eighth of a cent still in fractions here very similar to uh bonds as well on treasuries uh that tick is worth six dollars and 25 cents all right whoops you can see the trading hours as well essentially uh almost 24 hours and the settlement as we've discussed with other commodities even though they may continue to trade there is a daily settlement in this case it's going to be at about 15 minutes past the hour 1 pm central time as well as when trading terminates you can see some of these explanations can be a little confusing there have to think through it train terminates at 1 15 central time on the last friday which precedes at least two business days the last business day of the month prior to the contract month okay uh two things a note obviously uh you know one can see when a contract expires a couple of ways well one we can see the liquidation which is not the expiration but if one had an underlying uh that doesn't apply to the uh the futures contract if i go to the tray tab and i bring up like forward slash z s we can see the expiration for the underlying contracts so the current contract 57 days out and we can take a look at the various options very similar equity options are the days to expiration since we are going to focus on uh some of the commodity options and spreads these are certainly the dates to be concerned about however if any of those result in an underlying contract this would be the underlying contract that it's tied to and if for some reason one had a position they can see the number of days expiration there all right and going back uh to our specs here the other thing to consider too is again and there's ways of avoiding this particularly closing out positions prior to expiration but one also needs to realize that an option exercise results in a position in the underlying contract and options may have contrarian instructions so clients can get assigned on out of the money options and abandoned on in the money options it doesn't seem to make a lot of sense there but something to keep in mind that there's is not necessarily going to be an offset of those contracts automatically uh one would need to again typically close out those positions prior to expiration now uh looking at the economic calendar what are some of the news that traders may be interested in to learn more about some of the grains and the economic impacts a lot of these are going to be government reports government reports typically provided by the usda or some of their divisions such as the economic research service or natural agricultural statistics service we got the wasde which is world agricultural supply report and then there's even uh put out by the commodity futures trade commission uh called the commitment of traders report which basically regularly publishes the number size of positions from various market participants keep in mind that commodities market does fulfill certain business functions for hedgers of these different commodities as an example when you think about food producers farmers anyone who buys or sells these different commodities may take futures positions as a hedge to defend whatever prices are looking to buy or sell these commodities then you have speculators someone like ourselves or institutions that may look to profit from the movement in some of these commodities would be more speculators okay the cftc does put out a report of in aggregate some of those larger positions and we'll show you an example of that all right but before we uh take a deep dive into these uh let's take a look at our other uh major grain commodities so we have forward slash zs for soybeans we have forward slash zc for corn and notice make note same multiplier the statistics or the the contract specifications are similar as far as multipliers and size i believe all these are typically 5000 bushels as far as the notional uh size of the contract then we have forward slash zw for wheat so we have soybeans corn and wheat zs zc and zw now if we go ahead and we take a look at some of the uh quotes there yeah there is some discussion on uh other commodities whether it's like uh bitcoin or micro contracts the thing to keep in mind folks is uh with td ameritrade even though there are uh various contracts new products that are being released not all of them are necessarily available for trading on td ameritrade to kind of keep abreast of those instruments that are available for trading easy way of doing that is go into td ameritrade dot com forward slash futures td ameritrade dot com forward slash futures uh once there there is a link for available products and if you come down you should see what available products from various asset classes are available and likewise if there are options available for trading so you know here's some of the indices if i go to agriculture you can see there's actually quite a few other uh contracts that are available there's even many contracts for some of these uh different grains however there's no options available and usually uh on the minis uh though or correction um you know the minis or the micros you know may be a fraction of that underlying you know in this case uh uh looks like some of these are about a tenth of the value and uh correction that's soybean meal we're actually looking at soybeans wheat and corn is up a little bit it's a 50 multiplier uh whereas on the mini versions of these uh they are 10 so that's about 20 of that value okay all right so now that we understand a little more about the contract specifications uh let's go ahead and bring up some of the reports uh that may be tied to that and i have a few of these uh keyed up if you uh you know do want to make a note one can go ahead to i actually have ers.usda.gov that's the economic research service for the usda when you go ahead and come to this website you know you can see that there's some reports that may be right up on the top and it's a good where one can familiarize yourself with some of those different commodities that are available and then as far as a keeping an eye you know this is actually one area over here that found interest in visualizing uh ers data i think this is kind of a new feature i'm just going to go ahead and click on that uh and there's other stuff that may be tied into other areas that may be more macro in nature such as uh you know retail food spending and price environment you know go in and click on that and have a little visual table as far as where uh us household expenditures this is for 2019 pre-covid it'll be interesting to see what this looks like in 2020 or certainly 2021 as far as where people's money are going to notice food is still a big portion of people's outlay there why the interest in commodities and also the increase in demand if we go up to the top for calendar on er's website and go to calendar this is where we can go ahead and see some of the monthly releases or you can see today's releases as well but you can also go ahead and take a monthly view and you know if you're trading a particular commodity you'd be keeping an eye for some of those reports you know here's the wasde report this is the world agricultural supply and demand estimates uh so this is not only uh talking about what may have happened but uh also uh projecting uh some expectations so traders have a tendency of looking for this one the next publication for this is going to be may 12th so some of the commodities we're talking about today make a note to see what the impact of a report like this may be if you go ahead and click on that that'll take you to the webpage there you go ahead and learn more about this report as well as bringing up a previous or current report with april being the last one if i go ahead and click on that let's go ahead and zoom this out a little bit you can see a breakdown as far as expectations for wheat on supply and demand outlook uh wheat is lower in supplies reduced domestic use and higher ending stocks uh as far as exports let's see exports and i think that's where a lot of the offset has been in exports but looking at projections as far as ending stocks have raised their expectations but still 17 percent below last year which can point towards the supply and demand problem uh scroll scrolling down a little bit more and you'll see information there's rice oil seeds usually they may have something on corn see if i can actually find this here a little bit of a bigger report here up there it is coarse grains corn uh corn outlook greater feed residual use increased corn for ethanol production but keep in mind uh corn is not just a food it's a fuel and then you know basically looking at projections going forward and i think also soybeans is going to be in here as well soybeans a lot of demand from overseas and bear with me here a little hard time trying to find it here it is global soybean production has also been raised uh mainly reflecting an increase uh going out to brazil so you can see some of the potential demands from overseas as well as production from overseas all right so there's some of those reports there to keep an eye on if you're on the td ameritrade website under the market watch tab you can also go ahead and bring up econo day events although i think those websites are a little easier to navigate ken's also sharing some of those said links we discussed thank you ken for bringing those up and if you come here on the calendar and uh whether take a uh maybe like a weekly view you know if i go ahead and click on the uh well this is interesting why is that not a refreshing here up you notice that there's no news coming across when you're bringing up a particular week this is a common thing uh double check make sure you don't have a symbol in the upper left-hand corner because that will only bring up news tied to that symbol which is good for equities uh but uh not so much tied on the future side so i remove that symbol and then you know here if we go ahead and go to wednesday may 12th uh you know sometimes you may see these economic reports in here but for instance i don't see the wasde showing up on this list so don't overly rely uh on the calendar on the platform to have all the news those websites are pretty informative all right so now that we went ahead and looked at some of those reports uh let's go and take a look at the charts so as you know uh between ken and myself uh certainly are chartists there and uh you know may have kind of pained you that took me this long to bring up the charts so here's forward slash zs on a daily chart i'm going to go ahead and maximize this and you know from a technical standpoint you know we we can analyze trends just like anything else and soybeans and a lot of these grains and commodities in general have been on some pretty good tears here uh and one can draw trend lines identify areas of support and resistance such as that's a weekly chart actually let me go ahead and bring up a daily you know after for a good part early part of 2021 soybeans was kind of in a bit of a range or breaking out so that broken resistance can potentially act as support for the trend and as we look at some of this price action you know from last week soybeans did take a bit of a dip some traders may look at this as being a shooting star gap down and price is kind of filling in that gap and that gap potentially acting as some resistance at the moment so you know as we start off the week that support potentially acting as some short-term resistance any day we will be talking about treasury bonds in a later segment in fact it may be as soon as next week let's take a look at some of the other patterns on we'll take a look at corn and we'll take a look at wheat so kind of a similar pattern that we've seen with uh corn uh for the month of uh april there big surge uh up and we're seeing another example looks like that after a drop last week price is filling in now looks like today's price action actually is uh back above we were trading earlier last week i'll have to see what today's candle if that will be some upward momentum or more of a fade but certainly a good overall trend if we go ahead and take a look at forward slash z w for wheat looks like wheat's doing a little bit better relative to the other ones didn't drop as much but kind of in that a little more of a tighter range traders may consider this more of a a flag with that price action kind of consolidating look to see if it's able to break to the upside and continue so it's kind of the shorter term view on a few of these if we look at these much longer term my apologies my voice is a little uh well that's a little bit dry here didn't get my coffee this morning yet but anyway it's going to bring things up for more of a longer term you hear a lot of people talking about how commodities may be going into a much more longer super cycle that still may be determined but certainly the trends longer term have been turning up uh this is a weekly chart going back quite a few years you know compared to where we were back in 2010 to 2013 you can kind of see how commodities had been depressed for a good part of the second half of the 2010s and we're basically moving back in that range previous peaks before the crash going into great recession uh commodities were on a bit of a tear you know comparatively you know one may see some parallels uh to uh you know the expansion uh after the dot-com bust and going into the housing crisis and let's bring up some of these other ones here same thing with corn uh corn even uh yeah about the similar basically pushing back in that range where we were in 2010 2013 you can see some of those previous highs now i'm not sure if we're able to bring up the previous super cycle uh which really goes back to the uh the 70s and the 80s let me remember that i know certainly me and ken do and i don't think we go much more beyond unfortunately on the commodities back to 2004 met to do some third party research to bring that up while we're looking at these trends another area to look at folks is seasonality charts if i go ahead and go to i can do one of two things i can right click on the chart when in doubt right click and we can go ahead and take a look at seasonality charts so we can go ahead and go to the the style and you'll see chart mode so style and chart mode and here you can change it to seasonality here's the seasonality chart this is the current chart for corn and here is the five year average on what corn has done since we're in may now and if we do do a practice position you know we're probably looking at somewhere in this time frame so you know what did corn do five year average it looks like it had you know more than neutral to upward bias forward slash zw for wheat uh we can see the same thing looks like it had more of an upward bias at least going into july and forward slash zc for corn again kind of an upward bias now there's no guarantee uh that that would incur and looking at some of the comments as e-day mentioned uh is it safe to say when inflation goes up commodity prices go up as well well that is a one area um where uh some people speculate that that would be the case and has been in the case in the past now that's not a hundred percent as nothing is but so we have a combination of cycle and maybe anecdotally if inflationary continues to heat up over the next couple of months then that could put some pressure on some of these commodities hence why some traders are already speculating on those now this is a five year average folks if i want i can go to the gear up at the top i'm going to click on the gear we can get a more expanded view that's a five-year average if we go to appearance on the chart it's currently displaying the average you could display the yearly and the average and so it'll plot each of the five previous years sometimes there's a one-off or there can be a bit of a skew it's a little bit harder to see with the colors but you know one may look at different years there was one year uh was actually down that was actually i believe 2018. um looks like 2020 was actually a little more to the downside but on other years it was up so again it doesn't show you that everything is definite there if there's more more of a slowdown or less expectations for volatility or less expectations for inflation you know they know some of those prices could be depressed all right okay so with that let's go ahead i'm going to go ahead and let's change the chart back to its normal setting there and if we want to change the chart mode we can go from seasonality back to a standard chart and we'll click apply okay now if we uh want to go ahead and take a look at a particular trade um let's say expectations and i'm trying to see which one we'll go with here so wheat looks like one of the more relatively stronger ones as far as our examples and you know not necessarily too far off of some of those previous lows uh let's say we did an example of a a put spread and this would be a good shameless plug although not shameless because there's nothing shameful about him a good friend uh ken rose who's helping out on the chat with us here today uh if you go ahead and go to the td ameritrade website uh go to the webcast uh this is where not only you can see our webcast here but our upcoming webcast such as getting started with technical analysis with cameron coming up next but if you go to the webcast calendar you can take a look on wednesday ken does a class called short verticals that's where we're gonna do an example here uh with uh i think wheat if you want to learn more about the strategy and join them for that and i'm available on thursday same time talking about long verticals and diagonals which are a little more directional there also while we're here we can also settle uh that the actual day for leveraging capital with futures with ken is on thursday and that's going to be at 12 30 p.m eastern time so you're welcome to join them for that okay all right so let's go ahead and toss together a a practice trade now some traders you know maybe we're doing this for illustrated purposes notice that wheat is fading a little bit today there could be potentially a little more of a pullback some traders may wait for more of a bullish bounce uh to look for you know that type of uh entry there but let's see uh what we're able to piece together here so if we go to wheat and look at our option chain generally on our spreads you know we're looking at somewhere in the uh 20 to uh 50-day range uh maybe kind of somewhere in the middle uh you know right now a little bad time in there really don't have we have 18 days which is a little on the lower end we got 53 days which is a little further out the interesting if we toss them with 18 days now the pro with 18 days is uh you know we have potential to realize a maximum gain sooner uh if the price holds where it's at or goes higher however if we're wrong in that assumption uh not enough necessarily time for the price to recover i'm going to go ahead over here on the right hand side and look for a delta that's somewhere in the 30 to 40 range we're looking at more of a higher probability and ideally since we looked at the charts we'd probably like to see a number that's at or below that support so if we go and look at the chart you know support you know being around 710 as far as this low you know we got this 13 day moving average at around 704 so you know if we're able to be a little bit below at or below there uh you know would support the technicals there assuming uh that trend continues we'll go back to trade tab so if we're looking at around the 700 i'm going to right click on this i'm going to do cell vertical so we got sell vertical there's a five dollar wide and a buck 75 credit but keep in mind this is not a standard equity option notice the multiplier there's the 50 multiplier there so it's going to be 50 times 175.
if i hit the confirm and send you can see the defined risk defined gain of this trade very similar to the the equity options that we teach you so the maximum profit is the credit received in this case 87.50 that's a buck 75 times fifty maximum loss is that five dollar wide minus the buck seventy five uh that leaves us with 162. and we can do is we can position size this to a maximum loss that would be about three contracts so they did this three times this would be an example if let's say one was willing to risk about five hundred dollars the maximum profit would be two sixty and our breakeven is 698.25 if the price is above 698.25 at expiration theoretically this trade would be profitable okay minus commissions notice there are commissions and they can add up particularly for those of you they're very active traders in day trading those commissions can add up as well so we'll go and we'll place this practice trade now keep in mind as far as trade management if we're able to capture about 75 to 80 percent of that maximum gain we may close or scale that out as an example so if i go back and edit this trade so with the buck 75 credit uh if we uh let's just say go to calculator 175 times let's say 0.6.25 that would be around 43 cents so if this credit dropped down to about 45 cents that would be capturing about uh 75 percent of that maximum gain so that's something kind of making note of as far as a daily routine now notice there is a bit of a wider spread here that is some of the issue as far as with commodities uh even though that the spread falls within 10 percent of that ask price when we go ahead and look at volume and open interest it's actually volume open interest not too bad here relatively speaking as far as on the commodity side but we may need to do is adjust uh for that credit you know i could go ahead and put it in you know at or near that mark looks like prices are pulling back as we speak so may not be the best time but let's see if we can get a fill on that but notice i went ahead and did a confirm and send did not get necessarily filled right away on that uh we can rather be patient and see if that credit comes in if the price does continue to pull back a little bit today that would increase that credit uh doesn't necessarily increase the probability there and if i want to go and make a modification to that i can go to our working orders i can right click cancel and replace order and then adjust it to you know possibly a more marketable price i keep mine lower the credit less reward and notice by adjusting it to more of a marketable price we gotta fill their again your results may vary on that all right so we covered a lot of ground here today folks so some of the considerations for commodity futures options if you're already trading options on equity you can use the same strategies for options on futures after all an option is an option regardless of the underlying asset notice in the case of these grains wasn't necessarily a high entry point as far as cost of doing that trade even on the underlying futures the margins on the underlying futures are relatively lower than some other instruments there but it is something that one would need to familiarize yourself with you know equities and those who have been trading stocks for a while get a familiarity with the market and what stocks do in the case of commodities it requires a little additional research such as looking at the economic reports seasonality supply and demand of these various commodities but that it is there are quite a few tools and resources that you can learn so you know review that economic calendar and know what events may affect that commodity group also keep in mind that most commodity options on futures are american style which can be exercised or assigned at any time before expiration not likely uh but you know can happen particularly if they're uh deeper into money but that's okay keep in mind with these spreads these are defined risk before expiration you have a long contract that defines the risk on that trade more on those contract specifications td ameritrade dot com forward slash futures as well as the cme group.com where many
of these commodities are trading on and looking at some of the final comments and notes so taryn says why a short put versus a long call very good so we did a short put as an example of more of a potentially a higher probability by doing an out of the money put spread where the speculation is price over the next 20 days uh supported by some of the seasonality and the trend although not a foregone conclusion i mean price can pull back into that spread and still be in an uptrend and we still may be down uh for our example but speculating that the price would stay at or above that spread and generate a credit now we could have done a long call vertical and i could have done a shameless plug for my session on thursday this would be a little more directional if we did an at to a slightly out of the money we could have also done a call spread you know in the money but that still would be a debit uh for this example both of those are bullish but on how we teach the example of a long call vertical a little more directional versus ours we're just looking for it to stay where it's at or go higher okay so hopefully you learned a little more about some of these characteristics of commodity futures we saw some of the reports that you can do some research i may take a deeper dive on that commitment of traders report at a different time there's a lot to digest there we also defined about the fine risk option spreads and position sizing so we did practice trade based off of 500 position size to a maximum loss and we set a particular target of closing out that position if we're able to capture about 75 to 80 percent of that maximum gain would encourage to practice what you learn here today as well folks and remember in order to demonstrate the functionality of the platform we had to look at actual symbols keep in mind td ameritrade does not make recommendations or determine suitability of any security or strategy for individual traders any investment decision you make in your self-directed account is solely your responsibility so make sure you click like if you enjoyed what you learned here today folks follow me and ken on our other future sessions as well as our defined risk spread sessions on verticals we'd love to see you there and enjoy the rest of your week we got a nice spring weather going on and i'm looking forward to a pleasant week so take care everybody [Music] bye you
2021-05-06 23:07
