fot200906

June 2009 • Volume 3, No. 6

TRADING ORDER flow with market profile p. 12

STRADDLES VS.STRANGLES p. 20

SPREADING your charting options p. 26

TRADING PULLBACKSwith options p. 30

BEING RIGHT VS.MAKING MONEY p. 43

NEW CFTC HEAD confirmed p. 32

2 June 2009 • FUTURES & OPTIONS TRADER

Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Market Movers . . . . . . . . . . . . . . . . . . . . . . . .8Futures market roundup.

Trading StrategiesTrading order flow with Market Profile . . . . . . . . . . . . . . . . . . . . . . . .12How to interpret Market Profile charts.

By Robin Mesch

Another look at straddles and strangles . . . . . . . . . . . . . . . . . . . . . . .20A common dilemma for volatility traders is

whether to trade an options straddle or strangle.

This second excerpt from Guy Cohen’s book

Volatile Markets Made Easy: Trading Stocks and

Options for Increased Profits compares both

approaches.

By Guy Cohen

Spreading your charting options . . . . . .26How chart analysis can improve your options

trading.

By Thomas Stridsman

Options Trading System LabBuying calls on pullbacks in S&P 500 futures . . . . . . . . . . . . . . . . . . .30A simple options strategy shows buying

on dips has promise.

By Steve Lentz and Jim Graham

NewsGensler approved as CFTC head . . . . . .32Nominee Gary Gensler convinces a couple of

senators to vote in his favor by proposing a new

direction for derivatives regulation.

Penny Pilot Program’s future uncertain . . . . . . . . . . . . . . . . . . . . . .33Mixed results leave questions about how to

proceed with the option penny-pricing program.

CME Group combines NYMEX trading floors . . . . . . . . . . . . . . . .33The CME takes the next step in assimilating the

NYMEX by moving the energy and metals trading

pits onto a single floor.

CONTENTS

continued on p. 4

ads0709 5/11/09 2:00 PM Page 15

http://www.ninjatrader.com/ActiveTrader.htm

Key Concepts . . . . . . . . . . . . . . . . . . . . . . . .34References and definitions.

Futures Snapshot . . . . . . . . . . . . . . . . . . . .38Momentum, volatility, and volume

statistics for futures.

Options Radar . . . . . . . . . . . . . . . . . . . . . . .39Notable volatility and volume

in the options market.

Futures & Options Watch

COT extremes . . . . . . . . . . . . . . . . . . . . . . .40A look at the relationship between commercials

and large speculators in U.S. futures markets.

Options Watch:

Telecom stocks . . . . . . . . . . . . . . . . . . . . . . . .40

New Products and Services . . . . . . . . . . . . .41

Futures & Options Calendar . . . . . . . . . . . .42

Futures Trade Journal . . . . . . . . . . . . . . .43Volatility abounds near stock market top.

Options Trade Journal . . . . . . . . . . . . . . .44Buying the bounce in Procter and Gamble.

Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

Have a question about something you’ve seen

in Futures & Options Trader?

Submit your editorial queries or comments to [email protected].

Looking for an advertiser?

Click on the company name below for a direct link to the ad

in this month’s issue of Futures & Options Trader.

Ablesys

eSignal

E*TRADE FINANCIAL

Forex & Options Expo

Global Futures

NinjaTrader

RS of Houston

TraderPlanet

CONTENTS


mailto:[email protected]

ads0709 5/8/09 12:28 PM

http://www.wintick.com/home/index/s/ActiveTraders/


CONTRIBUTORS

Editor-in-chief: Mark [email protected]

Managing editor: Molly [email protected]

Senior editor: David Bukey [email protected]

Contributing editor:Keith Schap

Associate editor: Chris Peters [email protected]

Editorial assistant andwebmaster: Kesha Green

[email protected]

Art director: Laura [email protected]

President: Phil [email protected]

Publisher,Ad sales East Coast and Midwest:

Bob [email protected]

Ad sales West Coast and Southwest only:

Allison [email protected]

Classified ad sales: Mark [email protected]

Volume 3, Issue 6. Futures & Options Trader is pub-lished monthly by TechInfo, Inc., 161 N. Clark St.,Suite 4915, Chicago, IL 60601. Copyright © 2009TechInfo, Inc. All rights reserved. Information in thispublication may not be stored or reproduced in anyform without written permission from the publisher.

The information in Futures & Options Trader magazineis intended for educational purposes only. It is notmeant to recommend, promote, or in any way implythe effectiveness of any trading system, strategy, orapproach. Traders are advised to do their ownresearch and testing to determine the validity of a trad-ing idea. Trading and investing carry a high level ofrisk. Past performance does not guarantee futureresults.

For all subscriber services:www.futuresandoptionstrader.com

A publication of Active Trader®

CONTRIBUTORS

� Guy Cohen has extensive experience in the options stock markets, andhis clients include NYSE Euronext, the largest stock exchange in the world.Cohen is also the creator of Flag-Trader, OptionEast, and Illuminati-Trader.Specializing in trading applications, he has developed comprehensive tradingand training models. Cohen has an MBA in finance from Cass BusinessSchool, London.

� Thomas Stridsman ([email protected]) is a privatetrader, trading-strategy developer, and lecturer. Previously, hewas the senior researcher for Rotella Capital in Chicago, a com-modity trading advisor with more than $1 billion under man-agement. He also is a long-time contributing editor for Active

Trader magazine and a former editor at Futures magazine. He has authoredtwo books: Trading Systems that Work (McGraw-Hill, 2000) and Trading Systemsand Money Management (McGraw-Hill, 2003). He has a degree in macro eco-nomics from Uppsala University, Sweden.

� Robin Mesch has worked with traders worldwide, pro-viding market education for the professional trader based onthe RMA Methodology. Her innovative methodology andanalysis of the market have been featured on CNBC and have

been profiled in books such as Bloomberg’s New Thinking in Technical Analysis;Bulls, Bears, and Millionaires; The Outer Game of Trading; The Day TradersAdvantage; The Tao of Trading; Women of the Pits; and most recently,Breakthroughs in Technical Analysis: New Thinking from the World’s Top Minds.Mesch’s proprietary software is currently licensed to a select group of tradingfirms and fund managers with offices in Chicago and New York. In addition,Mesch serves as a unit trust portfolio consultant for Van KampenInvestments. Mesch is a Brown University graduate and currently resides inPortland, Ore.

� Steve Lentz ([email protected]) is a well-estab-lished options educator and trader and has spoken all over theU.S., Asia, and Australia on behalf of the CBOE’s OptionsInstitute, the Options Industry Council, and the AustralianStock Exchange. As a mentor for DiscoverOptions.com, he

teaches select students how to use complex options strategies and develop aconsistent trading plan. Lentz is constantly developing new strategies on theuse of options as part of a comprehensive profitable trading approach. Heregularly speaks at special events, trade shows, and trading group organiza-tions.

� Jim Graham ([email protected]) is the productmanager for OptionVue Systems and a registered investmentadvisor for OptionVue Research.

http://www.futuresandoptionstrader.com














��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

��

http://www.TraderPlanet.com/contest

http://www.traderplanet.com/index.php?page=join_now

http://www.traderplanet.com

http://www.traderplanet.com/freebooks



http://www.traderplanet.com/freebooks


Energy

Crude oil, gaso-line, and heatingoil shot higher inMay, with Julycrude (CLN09)making a strongmove above $60and eventuallytopping $68 byJune 1. A choppynatural gas marketwas the odd manout; the July con-tract (NGN09) ral-lied sharply inearly May, butgave back almostall its gainstoward the end ofthe month beforebouncing again.

MARKET MOVERS

Source for all: TradeStation

Breaking out of an early-spring slump, commodityfutures mostly jumped in May and early June, with gainsin energy and metal futures highlighting the charge.

After gaining ground in early May, the RogersInternational Commodity TRAKRS (RCTY) consolidatedbefore jumping again in the final week of the month andat the beginning of June — the first day of the monthbeing conspicuously bullish. Virtually all commoditycontracts enjoyed some upside action, with the notableexception of livestock futures, which suffered throughrenewed selling in the aftermath of the swine flu scare.

Financial futures were highlighted by the continuedrally in stock index futures and the pullback in Treasurycontracts.

Surging energies lead bullish commodity futures arena

Metals

After some sloppy trading in April — and despite thecontinued stock-market rally — precious metals swungto the upside in May. July silver (SIN09) paced the groupwith a nearly 36-percent gain from the April 20 low of 11.77

to the June 1 high of 15.97. June gold(GCM09) posted a more modest gainof approximately 15 percent duringthe same period, but nonethelesstraded to a three-month high of988.10 as June trading began.

Meanwhile, July copper (HGN09),which had begun rallying in lateFebruary, consolidated for much ofMay but burst out to the upside onJune 1, tagging 2.3285 and reachingits highest level since October 2008.

Grains

Grains were anotherstrong sector in May,

with wheat and corncatching up to an already strongsoybean market. July beans (SN09)were closing in on the teens byJune 1, trading as high as 1227,while July wheat (WN09) hit 677and July corn (CN09) topped 445.

Important Note: Futures and options transactions are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. For more information, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure Statement for Futures and Options available by visiting etrade.com/options and etrade.com/futures or by calling 1-800-ETRADE-1.New Accounts claim based on internal E*TRADE FINANCIAL Corp. metrics for average daily gross new E*TRADE Bank and E*TRADE Securities accounts between 3/1/08–2/28/09. Net new accounts were in excess of 150,000 over the same period.1. The new account holder will be charged 99¢ (per side, per contract, plus exchange fees) futures commissions for each futures trade executed once a qualifi ed account is opened and funded and deposited funds have cleared. After the 90 day offer period, each futures trade is $2.99 (per side, per contract, plus exchange fees). This offer is not valid for IRAs, other retirement, business, trust or E*TRADE Bank accounts. Excludes current E*TRADE Securities customers, E*TRADE FINANCIAL Corp. associates and non-U.S. residents. Offer only applies to new E*TRADE Futures Accounts opened with a $10,000 minimum deposit. Account holders must maintain minimum funding in all accounts ($10,000 minus any trading losses) for at least six months or credit may be surrendered. Limit one new E*TRADE Futures account per customer. We reserve the right to terminate this offer at any time. In addition to the $2.99 per contract per side commission, futures customers will be assessed certain fees including applicable futures exchange and NFA fees, as well as MF Global fl oor brokerage charges for execution of non-electronically traded futures and futures options contracts. These fees are not established by E*TRADE Securities and will vary by exchange.E*TRADE Securities LLC and Trading Technologies are separate and unaffi liated companies.CME Group does not offer or provide any investment advice or opinion regarding the nature, potential, value, suitability or profi tability of any product or investment strategy. The Globe Logo, CME Group and Forex E-micros® are trademarks of Chicago Mercantile Exchange Inc.Securities products and services are offered by E*TRADE Securities LLC, Member FINRA/SIPC/NFA.Futures accounts are carried by MF Global, an unaffi liated company.System response and account access times may vary due to a variety of factors, including trading volumes, market conditions, system performance and other factors.©2009 E*TRADE FINANCIAL Corp. All rights reserved.

SIZEMATTERS.Introducing Forex E-Micro Futures.1/10 the contract size, 1/10 the risk exposure.

DIRECT ACCESS to Every Secure& Regulated U.S. Market

NO FEE Futures Platformpowered by Trading TechnologiesTM

TRADE THEM AT E*TRADE

FREE EDUCATION & DedicatedCustomer Service

For 90 days, $2.99 thereafter

ETRADE.COM/FUTURES 1-800-ETRADE-1

NEW

1000 new accounts a day

1

http://www.etrade.com/futures

Treasuries

T-note and T-bondfutures sold off sharplyin late May and openedJune with more selling.The June 10-year T-notecontract (TYM09),which traded above 126on March 18, brokebelow the 120 level deci-sively in late May and,after a two-day bounce,traded below 117 onJune 1.

Fiber and wood

Cotton pulled back from itsrobust rally in the latterhalf of May. After hitting 61.67 on May 12, the July contract(CTN09) retreated to 54.16on May 28 before bounc-ing back to 58 on June 1.

July lumber (LBN09)continued to swing in awide trading range,falling to the level of itsMarch and April lowsaround 170 on May 21before bouncing backabove 200 before the endof the month.Softs

Coffee’s 27-per-cent rally from lateApril to early June

paced the soft-com-modity market. July coffee(KCN09) rallied to 142.90 onJune 2 after trading as low as112.75 on April 21, while Julysugar (SDN09) remained nearthe upper end of its May trad-ing range and a relativelyweak July cocoa contract(CCN09) managed to jump onthe bullish bandwagon in mid-May. July orange juice (OJN09)extended its rally to 97.55 onMay 29 after falling as low as87.20 in mid-May.

Stockindices

The U.S. stock mar-ket toyed with bulls

and bears for most of Maybefore bursting to theupside in the final minutesof trading on May 29 andthen following throughwith a huge gain on June 1.June E-Mini S&P 500 futures(ESM09) jumped around 3percent on the first tradingday of June to 947.25 — thehighest level sinceNovember 2008 — whichextended the gain from the early-March low to more than 42 percent.

June dollar indexfutures (DXM09)broke to the down-

side in May and extended their losses at the outset ofJune, trading below 79.00 — a roughly 12-percentdrop from the contract’s March high.

MARKET MOVERS

Meats

After regainingnearly all theirlosses from theimmediate aftermath of theswine-flu outbreak, pork futuresturned back down in mid-Mayand were still selling as Junearrived. July lean hogs (LHN09)pushed to fresh contract lowsbelow 63.00 on June 2, while Julypork bellies (PBN09) wallowednear their contract nadir. Augustlive cattle futures (LCQ09) werechallenging their March andFebruary lows at the end of Mayand beginning of June.


Currencies

http://www.currencytradermag.com

OPTIONS STRATEGY LABTRADING STRATEGIES


BY ROBIN MESCH

Trading order flow with market profile

Note: A version of this article originally appeared in the May 2005issue of Active Trader magazine.

Assume you’re trying to find the nearest coffeeshop, and a Starbucks delivery van pulls up nextto you. Do you: a) ask the driver for directions, b)

follow the delivery van, or c) ask the van? Surely none of us would chase the van or ask the vehicle

itself, but these two choices symbolize what traders all tooconsistently select when determining market direction.

For many traders, the central focus for determining mar-ket moves is price, which has become equated with orderflow. However, price and order flow are as different as thevan and the driver. Price is merely an effect — a distributionvehicle — but traders routinely chase it looking for marketdirection. If you really want to know where the market isheaded, you need to understand order flow.

Traders can tap into order flow with Market Profile,which is a database, a methodology, and a mindset all

geared toward organizing, processing, and structuring amarket’s buy-and-sell order flow.

We’ll explain how to interpret Market Profile charts andtheir four steps of market activity, as well as illustrate pat-terns that can be used for trade setups.

What is Market Profile?Market Profile is a database that organizes market activityin terms of order flow. Figure 1a is a monthly bar chart ofthe Euro Bobl futures (FGBM), which reflects German gov-ernment bond prices.

Organizing the data into a bar chart helps highlightimportant patterns, but the bar chart captures only onedimension of the market — price. Order flow is a two-dimensional creature and is best expressed as how muchtime a market spends at a given price.

Figure 1b is the same data organized into “profiles” thatcapture the natural process of the auction. For a detaileddiscussion of Market Profile theory and how it organizes

Market Profile charts display aspects of trade activity other charts cannot. Deciphering this data

and the “four steps of market activity” can help gauge what the market is doing.

This comparison of a monthly Bobl bar chart to a MarketProfile chart covering the same time period shows howMarket Profile highlights the most frequently traded price levels (i.e., the mode line) since 1999.

FIGURE 1 — BAR CHART VS. MARKET PROFILE

Source: CQG

FUTURES & OPTIONS TRADER • June 2009 13

market data, see “UnderstandingMarket Profile.” Here, we’ll focus onidentifying a profile’s unique patterns.

The profile data format shows exact-ly how much time a market spends ata given price and Figures 1a and 1bclearly show all prices are not createdequal. Figure 1a shows the Boblfutures spent quite a bit of time at cer-tain prices (i.e., from 105 to 107between August 2000 and August2002, and around 111.00 from August2002 to January 2004), creating bulgesin the profile, which indicates the mar-ket felt those price areas were “fair.”

The Bobl spent little time at pricelevels traders considered relativelyunfair, creating hollow portions in theProfile. The widest part of the curve(the “mode” line) is where the marketspent the most time and built the mostvolume. This is often referred to as theconsensus point, or the most “fair”price in a time period.

Left to its natural order, the market auction process seeksa fair price. First, a non-random order-flow imbalance cre-ates a strong initial vertical move. Then, a somewhat ran-dom consensus-building (i.e., horizontal) phase followsand establishes a new fair price.

Most of the trades within each profile (70 percent) occurwithin its “value” area. To calculate the value area, add allTime Price Opportunity intervals (TPO) in a profile, find itsmode, and then count out 70 percent of these TPOs oneither side of this mode. In Figure 2, for example, there are184 TPOs and the mode is 109.14. Start at this level andcount the 129 TPOs that are centered around this price.

First, compare the line above the mode line to the onebelow it; include the widest line as part of the value area. InFigure 2, the line below the first profile’s mode (y to H) isfatter than the one above, so we include that line. Next,compare the line above to the next line below and select thewidest one. Repeat this process until all 129 TPOs areincluded. Figure 2 shows a Market Profile chart of theChicago Board of Trade’s (CBOT) March 2005 five-year T-note futures (FVH05) from Feb. 4 to Feb. 10. The blue linesto the right of each profile in Figure 2 represent their valueareas (from 109.09 to 109.15 in the above example).

This process creates a bell-shaped curve typical of ran-dom activity around underlying order. Profiles follow thesame structure and begin when a large price move carriesthe market out of an established range. Here, time is an arti-ficial organizing principal; the more organic principalbecomes a completed cycle of market activity as reflected inthe formation of a bell curve and the beginning of a newvertical move out of its mode line.

Four steps of market activity Each cycle of market activity (i.e., the completion of a bell

curve) consists of up to four steps (see Table 1). Step 1,which is always present, is the non-random move — a rapidrally or decline that starts off a cycle. Step 1 represents amarket imbalance; a large amount of capital comes into orout of the market. This first step generally offers the most

continued on p. 14

A typical Market Profile cycle includes four steps that range from strong verticalmovement (always present) to building a bell-shaped curve.

TABLE 1 — THE FOUR STEPS OF MARKET ACTIVITY

Step 1: Strong vertical movement• The only non-random step.• The most profitable trading opportunity.• Represents a market imbalance: A large shift of capital into or out of

the market.

Step 2: Stops the directional move• Step 2 begins to build the first standard deviation. • It’s usually recognized by failing to set a lower low, and the start of a

high horizontal ratio such as a 4x4.

Step 3: Forms a “p” or “b” shape• The market begins to move sideways, or “develop.”• A “p-” or “b-” shaped profile forms, with the first standard deviation

near the top if step 1’s move was up, and near the bottom if it was down.• Prices rotate around what will become the control price (or mode) of this

general area.

Step 4: The bell-shaped curve• The market tries to move toward efficiency.• The first standard deviation of prices migrates toward the middle of the

range that began with step 1.• The combined profile becomes bell-shaped.

Step 1 is a typically strong price move that breaks out ofthe prior profile’s mode line (Feb. 9). Step 2 begins whenthis vertical move ends and price starts trading sideways.

FIGURE 2 — STEPS 1 AND 2

Source: CQG


TRADING STRATEGIES Key statisticsThe mean (or average) of a set of values is the sum of the values dividedby the number of values in the set. If a set consists of 10 numbers, addthem and divide by 10 to get the mean. For example, the mean of 1, 2, 3,4, 5, 6, 7, and 200 is 28.5 (228/8).

The median of a data set is its middle value (when the set has an oddnumber of elements) or the mean of the middle two elements (when the sethas an even number of elements). The median is less susceptible than themean to distortion from extreme, non-representative values. The median of1, 2, 3, 4, 5, 6, 7, and 200 is 4.5 ((4+5)/2), which is much more in line withthe majority of numbers in the set.

The mode is the value that appears most often in a data set. In theabove example, all numbers appear one time, which means it has no dis-tinct mode. A data set can have either one or several modes. For example,the mode of 1, 1, 2, 3, 4, 5 is 1, but the modes of 1, 2, 2, 3, 3, 4, 5 are 2and 3.

Variance measures how spread out a group of values are — in otherwords, how much they vary. Mathematically, variance is the averagesquared “deviation” (or difference) of each number in the group from thegroup’s mean value, divided by the number of elements in the group. Forexample, for the numbers 8, 9, and 10, the mean is 9 and the variance is:

{(8-9)2 + (9-9)2 + (10-9)2}/3 = (1 + 0 + 1)/3 = .667

Now look at the variance of a more widely distributed set of numbers: 2,9, and 16:

{(2-9)2 + (9-9)2 + (16-9)2}/3 = (49 + 0 + 49)/3 = 32.67

The more varied prices, the higher their variance — the more widely dis-tributed they will be. The more varied a market’s price changes from day today (or week to week etc.), the more volatile that market is.

A common application of variance in trading is standard deviation,which is the square root of variance. The standard deviation of 8, 9, and 10is .667 = .82; the standard deviation of 2, 9, and 16 is 32.67 = 5.72.

One-hundred-percent horizontal ratios are easy to find — look for fouror more filled columns — and typically signal a vertical move. This11x11 ratio (letters H to D) occurred between Feb. 10 and 11 beforethe expected selloff began at “D.”

FIGURE 3 — 100-PERCENT HORIZONTAL RATIO

Source: CQG

profitable trading opportunity. Figure 2’s bell-shaped curve marked the high-

volume region from Feb. 4 to Feb. 8. The step-1move came out of the mode line in a typical pat-tern. As long as each successive bar is setting a newlow and there is very little horizontal activity, themarket is in step 1.

An order flow imbalance cannot go on indefi-nitely — ultimately it will dry up. This leads to step2, which occurs when the vertical move has gonefar enough in one direction to shut off the buying orselling — that is, when it reaches a price too high toattract more buyers or too low to attract more sell-ers. This step begins with a bar that does not set anew low or a new high and starts to show signs ofshort-term horizontal activity.

Figure 2 shows step 2 began at the “y” bar onFeb. 10. This step is typically marked a “4x4” pat-tern, or a high horizontal-to-vertical ratio that startsto suggest the buy or sell order flow imbalance isending. It’s easy to pick out a 4x4 on a 30-minutebar chart — just check whether you can draw a hor-izontal line that crosses four consecutive bars.

On the shortest time frame, the existence of a 4x4is evidence of random activity, or horizontalmotion. A 4x4 has a 100-percent horizontal ratio ofpossible to actual width. A high 100-percent hori-zontal ratio (i.e., an 8x8 or 10x10) is evidence ofextreme randomness on a very short-term basis.

Figure 3 shows the five-year March 2005 T-notefutures from Feb. 9 to 11. A strong directional moveemerged from the area with a very high 100-percenthorizontal ratio (11x11). The 100-percent horizontalratio helps us determine not only when the verticalphase of market activity is ending, but also when ahorizontal phase is ripe for a directional move —when a market establishes extreme randomness, itusually signals a directional move. In this case, themarket started to decline at “D” right out of themode line, which is the typical pattern.

Developing the profileA vertical move is followed by a development peri-od, which is the third step of market activity. In step3, the market moves horizontally while it builds thefirst standard deviation at one end of the previousmove. For a detailed explanation of standard devi-ation, see “Key statistics.”

In step 3, the market typically doesn’t develop allthe way back to the origin of the vertical move.Instead, one end of the move is developed, whichresults in a p- or b-shaped profile. This step nor-mally continues until it builds up a bell-shapedcurve with a distinct mode and often a high 100-percent horizontal ratio, such as the 11x11 thatoccurred in Figure 3.

Figure 4 shows the five-year T-note futures on


Feb. 9 and illustrates a typical p-shaped pattern. Figures5a and 5b show the “p” and “b” patterns as they devel-oped: from Feb. 14 to 19 (b) and Feb. 20 to 24 (p), out-lined in red and blue, respectively. Figure 5b combinesthis data to more clearly illustrate the “b” and “p”shapes. Putting both step 3s together begins the creationof the bell-shaped curve.

During step 4, the final step of market activity, themarket begins to form a bell-shaped curve over theentire range of step 1. As this happens, the mode beginsto float from one end toward the center of the range,returning to step 1’s initiation point (see Figure 6). Step 4is complete when the data develops a bell-shaped curve,or a capital-D shape.

Trading profile Now that we have an overview of the complete marketcycle, we can try to put what we’ve learned together in atrade strategy. Figure 7 shows a long-term profile of theMarch 2005 S&P 500 futures (SPH05) from Jan. 19 to Jan.25, 2005. During that period, the S&P ranged from 1192to 1164, and the value area was between 1179 and 1166.

What step do you think the S&P is and where wouldyou expect it to develop next? Actually, Figure 7’s shad-ed area is a step 4, which is still underdeveloped. In thisprofile, we would not expect a directional move to occuruntil the entire profile reverts into a more fully devel-

“P”-shaped patterns typically occur after the market halts aprior upswing (step 1) and begins to develop around the firstdeviation of the move’s end.

FIGURE 4 — STEP 3 “P” SHAPE

The “b”-shaped pattern formed from Feb. 14 to 19 before the “p” devel-oped over the next three days. Figure 5b shows the same data consoli-dated into more recognizable shapes. These two patterns often form acompleted bell curve, or “d”-shaped pattern.

FIGURE 5 — STEP 3 “B” AND “P” SHAPES

Source: CQG

continued on p. 16 Source: CQG


TRADING STRATEGIES

Market Profile, which was developed by Peter Steidlmayer at theChicago Board of Trade (CBOT) in the 1980s, measures orderflow and is based on two assumptions:

First, the market is an auction process, which moves up ordown until buy and sell demand are equal.

Second, the market moves either sideways or verticallydepending on whether the current buy/sell demand is relatively inor out of balance. When buying demand roughly matches sellingdemand, the market tends to move horizontally; when this rela-tionship is out of line (i.e., more buyers than sellers or vice versa),a vertical price move is imminent.

A large price move is fairly easy to identify on a price barchart, but a sideways move, which implies buy and sell demandis in equilibrium, can be tough to interpret.

Steidlmayer realized these horizontal movestended to form Gaussian (bell-shaped) curves,which group prices around that curve's peak, or itsmode (i.e., the most frequent price). Sixty-eightpercent of these prices are also within one stan-dard deviation of the mean — see Figure A. AMarket Profile chart organizes price data accord-ing to this principle, except it turns the bell curveon its side (90 degrees).

Figure B shows a 30-minute Market Profile chartof the S&P 500 index from Feb. 14 to Feb. 24, 2005.Each letter represents the S&P’s price range duringone 30-minute time interval and is called a TPO, orTime Price Opportunity. For example, there are 13TPOs (letters A to M) each day in Figure B, whichrepresent the trading day’s 13 half-hour trading peri-ods: Letter A shows the S&P price from 9:30 to 10a.m. ET, letter B shows its price from 10 to 10:30a.m., and so on.

Market Profile charts plot each TPO to as far tothe left as possible in each day, so if price overlapsduring two TPO intervals, (e.g., letters Aand B), that row includes both letters.Therefore, the widest sections of the pro-file represent areas where the markettraded most frequently. The chart plotsadditional rows as subsequent TPOstrade outside the prior interval’s range.

According to Figure B, for example, theS&P 500 traded between 1196 and 1199from 9:30 to 10 a.m. ET on Feb. 22, andtraded within that range for much of thenext 30 minutes before breaking abovethe 1200 level from 10:30 to 11 a.m.However, the S&P sold off below 1190 inthe final two hours of the day (letters Jthrough M).

Figure B’s 30-minute TPOs are organ-ized by day, which makes it more intuitiveto understand at first, but more significantpatterns tend to appear as you consoli-date a day’s 13 TPOs into larger, com-posite profiles. For example, if you com-

bine Figure B’s TPOs from Feb. 22 to Feb. 24, the profile willlook different than a daily one.

Although Figure B’s lettering scheme (A to M, or 9:30 a.m. to3 p.m. ET) is easy to follow, there are no solid rules about thisformat. For example, different data providers, markets (i.e., pitvs. electronic), and securities may use other letters. As you buildcomposite profiles, the key is to recognize larger patternsinstead of focusing on a profile’s letters.

(To learn more about Market Profile, visit the Chicago Boardof Trade’s Web site:

http://www.cbot.com/cbot/pub/page/0,3181,1168,00.html.)

— Active Trader Staff

The Gaussian (or “bell”) curve shows the standard deviation of valuesaround the mean. The curve’s peak also represents the mode.

FIGURE A — STANDARD DEVIATION

This 30-minute chart shows that the S&P 500 traded in a fairly tight range onFeb. 18, creating a wide profile, before it sold off the next day. (Vertical movesresult in narrower profiles.)

FIGURE B — MARKET PROFILE CHART

Source: http://www.erlangerquote.com

Understanding Market Profile

http://www.cbot.com/cbot/pub/page/0,3181,1168,00.html

http://www.erlangerquote.com


oped bell curve.There is much more

development necessary totransform this step 4 into afully ripe D-shaped pat-tern. Combining the pro-files so far shows the mar-ket-auction process wasn’tcomplete in the S&P’smiddle region (see circledareas).

Look for holes in theprofile that need to befilled. You have an oppor-tunity to trade the top andbottom of the developingvalue area until thoseholes are filled in. The pro-file needs to develop inthe circled area to form abell-shaped curve.

Figure 8 shows this isexactly what happenedover the next several days.The strategy of buyingaround 1167 and selling

toward 1177 (i.e., the developing value area)worked quite well until Jan. 28 as the low vol-ume areas filled in.

Trading a completed bell-shaped patternFigure 9 shows when the data is put into acomposite profile, the market has formed acompleted bell-shaped curve. Finally, the cupis full and ready to spill. The market hasformed a complete bell-shaped curve and step4 is ready to become a new step 1. But in whichdirection?

At this point, our strategy must shift awayfrom buying the bottom and selling the top ofthe value area. The steps of market activityshow us when to use a congestion tradingstrategy (Figure 8) vs. a trend-following strate-gy (Figure 9).

When trading the steps of market activity,don’t lose sight of the larger picture, whichwill start to influence market direction once

continued on p. 18

The final step of market activity occurred asthe five-year T-note futures fell and returned toits initiation point (step 1).

Source: CQG

FIGURE 6 — STEP 4 COMPLETING THE BELL CURVE

On Jan. 25, this underdeveloped step 4(see circled area) suggested that the S&Pfutures would be range-bound until a morecomplete bell curve developed. At thispoint, sell the top and buy the bottom ofthe shaded value area until holes in thebell curve fill in.

FIGURE 7 — S&P 500 TRADE SETUP

Source: Capital Flow Software 3.85

The S&P traded between 1166 and 1179 from Jan. 25 to 28, whichconfirms that the strategy suggested in Figure 7 (i.e., selling the topand buying the bottom of this range) would have been profitable.

FIGURE 8 — TRADING THE “VALUE” AREA



the shorter time frames have complet-ed their market activity cycles.

Figure 10 shows the shorter-termbell curve (i.e., Jan. 19 to 28, middle)in the context of data going back toDec. 3, 2004 (left), which suggests therecent price action is part of a largerunderdeveloped bell curve (see cir-cled area).

There are important clues in termsof the steps of market activity andvolume analysis to help us determinea buy-and-sell strategy and the nextdirectional move of the market. Thecompleted short-term profile (middle)tells us to no longer play for a rangetrade, but for a step-1 directionalmove instead. (Typically, those movesstart out of the high-volume area.)

Also, if you compare Figure 10’sshorter-term price action to its longer-term profile, (i.e., the underdevelopedstep 4, which began on Dec. 3), itwould be safe to assume the S&P willhead higher.

Buying the bottom of value (1166)toward the end of January and hold-ing, or buying the mode of the short-term profile (around 1172), would bea fairly low-risk strategy since we’danticipate the larger “d” shape bellcurve to form. Figure 10’s right sec-tion, which began on Jan. 28, showsthe market rallied as expected.

Bottom lineThe bell-curve database taps into thetwo-dimensional nature of order flow.This represents a unique paradigm forunderstanding and anticipating mar-ket activity. The key is to stop tradingin terms of price and start organizingtrades according to market structure.Overall, this approach calls for achange in mindset wherein you trademarket time, not clock time, and youbuy time in your trade, not price. ��

For information on the author see p. 6.

TRADING STRATEGIES

FIGURE 10 — SHORT- VS. LONGER-TERM PATTERNS


This composite profile contains the samedata as Figures 7 and 8 and shows thebell curve has been completed over thistime period (Jan. 19 to 28). This indicateswe must change our strategy to anticipatetrends from buying and selling the valuearea.

FIGURE 9 — BELL CURVE COMPLETE

Source: Capital Flow Software 3.85Analyzing completed short-term bell curves over longer-term periods can reveal clues about the market’s next move. Here, Figure 9’s bell curve (Jan. 19 to 28, middle) is shown within the context of alarger pattern, which began on Dec. 3, 2004. The circled area suggests this longer-term bell curve will fill in the upper section of its pattern, which occurred (as expected) after Jan. 28.

Attend and Take Home Valuable Expert Knowledgeon How to:• Recognize which option strike price and expiration month to buy or sell• Find the right currency pairs to offer you the most upside during specific

news announcements• Minimize your risk and determine profit and stop levels before every trade• Determine which currency pairs offer the best "carry trade" interest• Enhance your trade accuracy using the latest tools and software• Read the underlying psychology of the markets to determine which

currency pair to buy or sell

Platinum Sponsors Media PartnerGold Sponsors

Githler Center • 1258 North Palm Avenue • Sarasota, FL 34236-5604800/226-0323 • www.MoneyShow.com

a Production of

www.FXandOptionsExpo.comDiscover complete Expo details, learn how to attend,

and register free online. Or, call 800/970-4355.Mention priority code 014538.

Las Vegas | August 2-4, 2009Caesars Palace

Discover Dozens of Forex and Options Strategies from Profitable Traders

Attend and Gain the Ultimate Insight on Today'sMarket Trends for Forex and Options Traders

Dan Gramza Jon Najarian Guy Adami Kathy Lien Rob Booker Cornelius Luca

Confirmed Speakers Include:

and many more!

and much more!

Currency_Trader_Ad-LVFX09:Layout 1 5/21/09 12:57 PM Page 1

http://www.FXandOptionsExpo.com



BY GUY COHEN

Another look at straddles and strangles

Note: The following article is the second installment of a chapteradapted from the book Volatile Markets Made Easy: TradingStocks and Options for Increased Profits (FT Press, 2009).The first article, published the May 2009 issue of Futures &Options Trader, described the mechanics of two non-directionaloptions strategies — straddles and strangles. For a review of howthese positions work, see “Straddle and strangle components.”This excerpt compares the benefits and drawbacks of bothapproaches.

The decision of whether to buy the straddle, stran-gle or both, is a function of the cost of the trade,their breakeven points, expected stock price

behavior, and the expected volatility of both the stock andthe options. Let’s break these down.

Cost of the tradeThe lower the cost of the trade, the less stock price move-ment is required to make the trade profitable. Also, thelower the cost of the trade, the lower the implied volatility(IV) has been in buying the options and the less they candecline by, at least in theory. I tend not to pay more thanaround 10 percent or so (straddle cost / stock price) forstraddles with less than two months to expiration. I don’tlike to go much over 15 percent for straddles with betweentwo to three months to expiration and 20 percent for strad-dles with between three and four months to expiration.These figures are simply a guideline I like to keep, andwhile it’s not particularly scientific, it does tend to keep meout of trouble, particularly from rapidly declining impliedvolatility that may occur after entering a trade.

During bearish market phases, stocks can be highlyvolatile, which is reflected both in stock price action and theoptions premiums because of higher implied volatilities.During these market phases, there tends to be fewer of thesort of trades I like, so I simply have to stay away from themuntil things return to a semblance of normalcy. The worstthing you can do is “chase” the opportunity like a desper-

ate gambler. My game plan is to buy low volatility and sellhigher. It isn’t to buy high volatility and hope it’ll get high-er still. I should emphasize that what I’ve just described iscompletely different from buying a stock that is reachingnew highs — that’s okay if it breaks out of a consolidationpattern such as a flag (see “Flag patterns”).

Breakeven pointsThe expiration breakeven point of the trade is something ofa moot point because we never hold on to expiration any-way. However, we still pay close attention to it as it gives usa guide to how our breakevens will behave even beforeexpiration. Nice Systems (NICE) was trading at $40.05 onNov. 2, 2007. Let’s look at the February 40.00 straddle andthen the 35-45 strike strangle and see how they comparepurely in terms of breakevens at expiration (Table 1).Remember we wouldn’t hold the trade to expiration, butwe’d still use the calculation as part of our analysis to com-pare the straddle with the strangle.

•For the straddle, the 40-strike puts are trading at 2.65-2.95, and the calls are at 3.30-3.60. If we buy at the ask, then our trade cost is 6.55.

•For the strangle, the 35-strike puts are trading at 0.90-1.10, and the 45-strike call are at 1.35-1.55. If we buy at the ask, then our trade cost is 2.65.

The strangle breakevens are both 1.10 wider than thestraddle breakevens. That means if you kept the tradesopen until expiration, the stock would have to move anextra 1.10 either way in order for the strangle to breakevenas compared with the straddle. Although you’d never hangon to expiration anyway, it gives you a rough guide as to therelative probability of the strangle’s likelihood to breakeven compared with the straddle. The wider apart thebreakevens are, the less probability the trade will breakeven, and vice versa.

In this case, if your analysis strongly indicates a stock isgoing to make a massive move, then Iwouldn’t be put off by a difference of only1.10 on either side with the stock pricearound $40.00. Typically, I look for thestrangle to be around half the cost of thestraddle with the breakevens not too faraway from the straddle breakevens. In thisexample I’m okay with the strangle as acomplementary trade to the straddle, based

TABLE 1 — BREAKEVEN EXAMPLE

Source: Volatile Markets Made Easy: Trading Stocks and Options

Calls Puts Cost Breakeven down Breakeven up

Straddle 3.60 2.95 6.55 [40 - 6.55] = 33.45 [40 + 6.55] = 46.55

Strangle 1.55 1.10 2.65 [35 - 2.65] = 32.35 [45 + 2.65] = 47.65

purely on the breakeven criteria.

Expected stock price behaviorAs suggested earlier, the expectation ofstock price behavior is a major factor incomparing the straddle with the stran-

gle. While the strangle is cheaperbecause of the out-of-the-money(OTM) options, the breakevens, as wejust saw, are typically slightly widerckin between the strikes, so both optionsare still OTM. With a straddle, it’s

more likely one of the options will bein-the-money (ITM) and the otherOTM, but it’s highly unlikely that thestock will end up on the single strike atexpiration, leaving both call and putwith no intrinsic value.

Because the strangle has a lowerbase cost than the straddle, the poten-tial percentage gain is also greater thanthe straddle. A 100-percent gain in thestraddle can mean a 300-percent gainin a good-value strangle. That happyscenario is facilitated by a massivemove in the stock. In my experiencethese massive moves have often beenpredicated by flag patterns about oneweek before an earnings announce-ment. The strangle has greater lever-age than the straddle because of thelower base cost. If the stock doesn’tmove, the strangle will lose a biggerpercentage, but if the stock moves alot, the strangle can make a far greaterpercentage profit.

When I’m anticipating a large movein the stock, I try to have a strangle onit, sometimes in isolation and some-times with the straddle — that’s just a


StraddleA (long) straddle is a non-directional trading that profits from either a large under-lying price move (up or down) or an increase in implied volatility (IV). The (long)straddle involves two steps:

Step 1: Buy at-the-money (ATM) strike puts.Step 2: Buy ATM strike calls with the same expiration date.

As you can see inFigure A, the strategyhas two breakevenpoints, one below andone above the strikeprice. The call and putshare the same strikeprice, which should beas near to the money(i.e., as close to thecurrent stock price) aspossible. It’s notalways possible totrade a straddlewhen the stockprice is nailed on astrike price, so oneside is bound to beslightly skewed infavor and viceversa.

The straddlecan expose you to significant time decay (if executed poorly) because you arelong ATM calls and puts which have no intrinsic value. However, it needn’t be ahigh-risk strategy, even if the anticipated volatile price action doesn’t materialize.

StrangleEssentially the strangle is identical to the straddle, except that the put has a lowerstrike, the call has a higher strike, and the stock price is typically in between,preferably equidistant between the two. The (long) strangle involves two steps:

Step 1: Buy OTM strike puts.Step 2: Buy OTM strike calls with the same expiration date.

The strangle can expose us to significant time decay because we are long OTMcalls and puts, which have no intrinsic value. Because of this, the strangle ischeaper than the straddle where the calls and puts are ATM. The other significantdifference is the risk profile has two turning points, one for each of the strikes.

From the outset, the put strike is typically below the stock price, and the callstrike is typically above the current stock price (Figure B). In order to have direc-tion neutrality from the outset of the trade, preferably both put and call strikes areequidistant from the stock price when the trade is initiated. In most cases, stran-gles will have wider breakevens to straddles, and this is something we need tocompare thoroughly when assessing whether to take the straddle, strangle, orboth.

FIGURE A — STRADDLE COMPONENTS

+ =

Buy put Buy call Straddle

Source for Figures A and B: Volatile Markets MadeEasy: Trading Stocks and Options for Increased Profits

FIGURE B — STRANGLE COMPONENTS

+ =

Buy OTM put Buy OTM call Strangle

Straddle and strangle components

continued on p. 22

http://www.rsofhouston.com


personal quirk due to my past experience. There are timeswhen the stock moves enough to make the straddle prof-itable (owing to the tighter breakevens), but the strangledoesn’t quite get there, so at least I’m hedged to an extentin that my straddle pays for the strangle in such circum-stances.

Expected volatilityOn a similar theme, in order to consider the strangle, I alsolike to have evidence that the expected volatility of both thestock and the options will increase after I’ve put on mytrade. In terms of the stock itself, I like to see well-formedflag patterns with a good flag pole followed by a few days

of shorter ranged bars. The hope is that this consolidationwill be followed by a resumption of increased volatility,hopefully in a decisive manner one way or the other. Inother words, I want the stock to explode up or down andthen keep going in that direction.

The implied volatility of the options is more complex.There are scenarios where the stock is consolidating, yet theimplied volatility of the options is increasing. This seemscounterintuitive, and it is. Surely if the stock price is con-solidating and the historical volatility is decreasing, theimplied volatility of the options should follow suit. Notnecessarily … otherwise this would all be too easy. It’s notuncommon for implied volatility to rise sharply, say, a few

TRADING STRATEGIES

Flag patterns

A flag pattern occurs after a thrustingsurge (the flagpole) consolidates toform the actual flag. The thrust canoccur in either an upward (bullish) ordownward (bearish) direction. A flagoccurs during a persistent and domi-nant trend and temporarily interruptsthat trend before it resumes. The flagitself consists of the price patternrebounding off two parallel interimtrendlines before breaking out in thedirection of the dominant trend.

Bull flagWith bull flags, our entry is a buyorder, and our stop loss is a sell order(see Figure X). We anticipate a risingstock price and enter your buy orderat either point A or B. Point A is at thelevel of the top of the flag. This is themost conservative entry pointbecause it is where the price is mak-ing new highs. You must make surevolume is increasing as the new highis made. Increasing volume meansthere is conviction behind the move,which makes it more likely to be sus-tainable. Point B is where the pricebreaks out of the flag itself. This ismore aggressive than point A andagain requires increasing trading vol-ume to demonstrate conviction in the move.

If the entry is activated, then you need a stop loss. Point Cis the level where, if you were already in the trade, you’d exitwith a small loss. This is your basic trading plan for a bull flagwithin the context of an upward trend.

Bear flagWith bear flags, our entry is a sell (short) order, and our stop

loss is a buy order to close the position (Figure Y). We antic-ipate a falling stock price. We enter our sell (short) order ateither point A or B. Point A is at the level of the bottom of theflag. As such it is the most conservative entry point becauseit is where the price is making new lows. Point B is where theprice breaks below the flag itself.

FIGURE X — BULL FLAG

Source: TC2000.com. Courtesy of Worden Brothers Inc.

FIGURE Y — BEAR FLAG


days before an earnings announce-ment. This occurs as a result of ananticipated increase in volatility fromthe earnings announcement, andtherefore option premiums rise tocompensate the option sellers for theincreased risk of being exercisedbecause of a major move.

Remember, option sellers haveunlimited risk. Implied volatilities canalso rise prior to a news announce-ment simply because the sellers knowthey can get away with driving up thepremiums; such will be the demand inthe lead up to earnings. The trick is, ofcourse, to avoid such options becauseafter the earnings report, the IVs (andtherefore the premiums) can comecrashing down, crunching all thosewho are long. This can be devastatingto straddle and strangle buyers if thestock didn’t make a move. Therefore, Ilike to find opportunities whereimplied volatilities haven’t yet startedto make the pre-earnings rise. Look forthe following criteria:

• Stocks with earnings approaching

• Flag patterns• Straddle cost as a proportion of

the stock price range over a similar time period as the time to expiration

• Straddle cost compared with the stock price

• IV not having ramped up before earnings

• And reasonably priced options in terms of implied volatility, i.e., the IVs of ATM options being not significantly greater than its average over other relevant time periods. For this I’ll compare IV readings on a chart from previous earnings cycles as well as standard monthly, bi-monthly, and quarterly comparisons.

News eventsEarnings reports and other corporate

news announcements have a hugeimpact on volatility trades. We can tar-get a news event as our catalyst for abig move, but we need to ensure thatimplied volatility hasn’t risen too farby the time we place the trade.

Ideally, you enter the trade beforeany IV spike occurs. There’s no hardand fast rule as to when pre-earningsor other pre-news-event impliedvolatility spikes will occur, but typical-ly it will be noticeable the week beforethe event. That requires placing thestraddle well before this; however, thismeans you may be in the trade for aweek or so longer, so time decay couldbe a factor unless you give yourselfsufficient time until expiration. In theevent the stock price moves stronglyafter the news event, you don’t wanttime decay ruining your trade, so it’sbetter to look at options with two tofour months to expiration, but prefer-ably three.

One popular strategy is to buy thecontinued on p. 24

http://www.globalfutures.com/margins/margins.asp?refid=activetrader

https://www.globalfutures.com/secure/webforms/matrix.asp?refid=activetrader

http://www.globalfutures.com/index.asp?refid=activetrader

https://www.globalfutures.com/secure/webforms/coupon.asp?promo=activetrader



straddle well in advance ofearnings, say one monthbefore, and then sell it afterthe implied volatility spike(assuming it happens) butbefore the earnings announce-ment, thereby avoiding anyrisk of a post earnings impliedvolatility collapse. This is asmart strategy, but in order toexecute it properly you mustbe able to find the opportuni-ties based on past and presentimplied volatility patterns.This is a formidable taskunless you have access to soft-ware that can easily reducethe study to a relatively smalllist of stocks.

Time decayTime decay is the enemy of thelong volatility trader. Wealready know time decayincreases exponentially duringthe final month before expira-tion, and you don’t want toown straddles during that finalmonth. Therefore, look foroption expirations where (a)your planned exit is timed wellbefore the start of the finalmonth and (b) where timedecay wouldn’t be a huge fac-tor between the time you placethe trade and the planned exitdate.

Straddle costOf course, the lower the cost of the straddle, the lower therisk, the tighter the breakevens, the greater the probabilityof profit, the greater potential percentage profit, and so on.However, don’t think that going for cheap front-monthstraddles is the answer — it’s not. The “front month” is thenearest expiration month, which can range from four weeksto a single day. Either way, the front month is subject to themost extreme ravages of time decay, and that’s no good forlong volatility traders.

Stock chart patternsBefore entering into a volatility trade, you want to see aneasily identifiable chart pattern. This can often represent thecalm before the storm of volatility that may ensue afteryou’re in the trade. Ideally, you want to see evidence in thepast that the stock can make a sharp move in either direc-

tion. Again, it’s all about buying low and selling high andobeying the criteria that conform.

Let’s look at two charts and see which is “prettier”(Figures 1 and 2). The object of the exercise is to see whichchart is easier on the eye and from which you could identi-fy a chart pattern and form a trading plan. It shouldn’t betoo difficult to notice that Figure 1 is much prettier; the barsare steady with the occasional big jump. We can see it tendsto move in steps and flags and it’s currently forming a con-solidation pattern. In the following three weeks (notshown), Apollo Group (APOL) jumped to a peak of $65, anincrease of 25 percent. By contrast, Figure 2 is messy. Thereis no discernable trend or pattern, and the bars are highlyinconsistent in terms of their length. ��


TRADING STRATEGIES

FIGURE 2 — TECHNE CORP.


FIGURE 1 — APOLLO GROUP


http://store.activetradermag.com



BY THOMAS STRIDSMAN

Spreading your charting options

Note: A version of this article originally appeared in the July 2000 issueof Active Trader magazine.

One basic disadvantage to only trading stocks fromthe long side, or by using futures for selling short,is the limited risk protection and decreased ability

to tailor a position to suit your specific needs. One way to“customize” your positions is to use a set of basic and easy-to-implement option strategies that complement a few equal-ly basic technical analysis chart patterns.

Of course, if you believe the market will go up you couldsimply buy a call option and limit your risk to the amountpaid, or buy a put option if you believe the market will godown. But what if you could weigh the possibilities of a cer-tain scenario actually happening — say on a three-gradescale (e.g., unlikely, likely, very likely) — and then tailor anoptions position to fit the scenario and the potential risk-reward ratio you’re willing to take on?

The probabilities of chart-pattern analysis can help youchoose an appropriate option strategy for a given tradingsituation.

Vertical jumpConsider a situation in which you think the market may

rise, but you still want some protection against a potentialdrop. Instead of just buying a call option, you could buyone call option and sell one call option with a higher strikeprice to limit your risk.

This position is called a vertical debit call spread. The greenline in Figure 1 shows what the profit potential for this posi-tion looks like. (“Debit” means it will cost money to put onone of these spreads; you cannot lose more money than thecost of the position.)

Granted, the profit potential will also be limited, but whyaim for a higher profit — and thereby also take on more risk— than your market analysis deems reasonable? To estab-lish a similar position in anticipation of falling prices, youcould put on a vertical debit put spread, consisting of one longput option and one short put option with a lower strike.

To implement a vertical debit call spread, you shouldchoose the strike for the short option to be at or slightly above(below for a put spread) the targeted price for the underlyingstock. The two options should not be more than two strikesapart because options too far out-of-the-money tend tobecome very illiquid.

The advantage of a strategy like a vertical debit spread is

How do you trade options effectively? Know which strategies go with different market conditions.

Here’s how to use chart patterns to determine the best option strategy to use in a particular situation.

The vertical debit call spread consists of a long call and ashort call at a higher strike price.

FIGURE 1 — THE VERTICAL DEBIT CALL SPREADA modified vertical debit call spread: The position isestablished with two long calls and two short calls; oneof the short options is bought back when the marketmoves up, increasing the position’s upside bias.

FIGURE 2 — THE VERTICAL DEBIT CALL SPREAD


that you don’t have to hold it until expiration. Depending onhow the market unfolds, you can get rid of one half of theposition or add even more options to either side of the strat-egy.

For instance, if you place a vertical debit call spread inanticipation of the penetration of a resistance line, you caneasily buy back the previously shorted option once the mar-ket has moved in your favor, ending up with an outrightlong call position (the blue line in Figure 1). Or, if the mar-ket goes against you, sell the long option to end up with ashort call position that will allow you to take a small profitout of the declining market (the red line in Figure 1).

Because it doesn’t matter how many total options thespread consists of, as long as it has an equal number onboth sides, buying and selling more than one option onlyadds to the position’s flexibility.

For example, say you bought two call options and soldtwo call options with a higher strike. Figure 1 shows a ver-tical debit call spread will become profitable earlier than anoutright long option. Once your position has moved intoprofitable territory, you could then buy back one of theshort options to end up with the position defined by thegreen line in Figure 2.

As you can see, this position will not be as profitable asan outright long call position if the market moves verystrongly in your favor. However, because it becomes prof-itable sooner, it will take a substantial move by the under-lying stock before the outright long position will start tooutperform this modified vertical debit call spread. Further,if and when this happens, you can always buy back the lastremaining short option and end up with two outright longs.

Straddling volatilityA vertical debit spread is a useful position when you have afairly clear opinion about what the market will do next. Butwhat about when you’re not so sure — when you think it cantake off in either direction?

That’s when a long straddle would come in handy. A longstraddle consists of one or more long calls and an equalnumber of long puts with the same strike price. (See“Trading volatility,” Active Trader, June 2000, p. 52). Thegreen line in Figure 3 shows what this position will look likecompared with the performance of an individual long putand long call. As you can see, the straddle will make moneyif the market makes a substantial move in either direction,but will lose money if volatility decreases and the marketdrifts in a narrow trading range

As with the vertical debit spread, the straddle allows youto get rid of the side of the position that loses money oncethe market takes off; the more options you use for the initialposition, the more flexibility you’ll have as the price actionunfolds. Figure 4 shows what a long straddle (initially con-sisting of two call options and two put options) would looklike after selling one of the put options. As you can see, it’snow slightly easier to earn a profit on the long side than the

short side. Now let’s take a look at the kinds of chart patterns that

offer trading opportunities for the option strategies we’vediscussed.

Chart patterns and directional biasWhen you get right down to it, there are only four types ofchart patterns: those that favor a strong move either up ordown; those that favor a more modest move up or down;those that imply a strong move in either direction; andthose that don’t favor a move in either direction (i.e., pricewill continue to move sideways).

Most traders are probably better off avoiding the lasttype. The profit potential is very limited, unless you’re atrader who specializes in volatility plays without anyregard to the actual price of the underlying market.

Among the patterns that favor strong moves in a certaindirection are top and bottom formations such as head-and-shoulders, double tops and bottoms, and wedges. In Figure

continued on p. 28

The long straddle consists of a call and put with thesame strike price and expiration.

FIGURE 3 — THE LONG STRADDLE

This modified straddle performs more favorably if themarket moves higher.

FIGURE 4 — A MODIFIED STRADDLE WITH TWO LONG CALLS AND ONE LONG PUT


5, the formation during the fall of 1998 is an example of adouble bottom with its most important resistance (oftenreferred to as the “neckline”) at point 1 (the relative high

between the two lows of the pattern, which also happens tocoincide with the bottom of a consolidation pattern preced-ing the double bottom).

An upward sloping wedge, whichimplies a potential top and trend reversal,consists of two upward sloping, converg-ing trendlines. In Figure 5, this pattern isforming between trendlines 5 and 8. Adownward sloping wedge formedbetween trendlines 4 and 7.

Other patterns with a strong directionalbias are consolidation patterns withintrends, such as flags and pennants (See“Waving the pennant,” Active Trader, May2000, p. 60). Because these occur withinthe context of an established uptrend, theconsolidation patterns at points 2a, 2b,and 2c in Figure 5 all favor a break (con-tinuation) to the upside — in the directionof the previous trend. (Such patterns are,in fact, often referred to as continuationpatterns.)

For these patterns, the magnitude of thesubsequent move depends not only onother support and resistance levels pres-ent in the market, but also on the moveleading into the pattern. To get a roughestimate, look for the move out of the pat-tern to be similar in size to the move lead-ing into the pattern. That turned out to befairly accurate for the patterns in Figure 5.

The patterns on this chart all representsupport or resistance of one degree or

another. The next step is to consider whichoption strategies to use to capitalize on theprice action they imply.

Combining pattern and strategyThe way to trade these patterns is to place avertical debit spread in anticipation of themove through the support or resistance linein question, then liquidate the losing half ofthe position after the breakout hasoccurred.

Ideally, though, you should wait until themarket pulls back slightly from the break-out before eliminating the losing half.However, because the market sometimestakes off without looking back, waitingmight prevent you from getting out of theunprofitable side. As a result, it’s a goodidea to consider working with a total offour options. This way, you can get rid ofhalf the losing position as the breakoutbegins — giving you a position looking likethe one in Figure 2 — and the other half at

TRADING STRATEGIES continued

A breakdown of different options strategies based on the expected price direction and level of volatility.

FIGURE 6 — OPTION STRATEGY MAP

The various support and resistance levels that developed over an 18-month period in the S&P 500 provide clues to the direction and magnitude of pricemoves. This information can then be used to select appropriate option strategiesat different points.

Source: TradeStation

FIGURE 5 — CHARTING YOUR OPTIONS STRATEGIES


the pullback, giving you two outright long options.In the event of a failed breakout, you have two choices:

Stay with your recently modified position, or scale it backfurther so it consists of one long and one short option, whichyou can sit on in anticipation of a second breakout attempt.

When the market is about to test a major trendline or sup-port or resistance level without any other kind of formation(such as any of the ones mentioned here) to indicate possi-ble direction, price is equally likely to take off in eitherdirection — and usually in a rather swift move with large,short-term profit potential for the correctly positioned trad-er. The magnitude of the move is usually limited to previ-ously defined support or resistance levels and the otherextreme of the price channel, such as the ones marked bytrendlines 9a and 9b in Figure 5.

Another directionally unbiased pattern is the (preferablysymmetrical) triangle, which forms with the intersection oftwo major trendlines, such as trendlines 5 and 10.Directionally neutral patterns like this are opportunities toput on straddles.

One excellent opportunity to place a long straddleoccurred in October 1999, when the market attempted to

test both support at about 1,300, and trendlines 4 and 5. Italso would have been possible to add a vertical debit callspread to this position in anticipation of a breakout throughthe resistance at trendline 6 and the wedge at trendline 7.No matter how you might have handled the outcome andmodified the positions as the market unfolded, these twostrategies would have positioned you to profit from sizablemoves.

Given the apparent longer-term wedge developingbetween trendlines 5 and 8, it could (at the time this waswritten) be a good place for a vertical debit put spread inanticipation of a breakthrough of trendline 5 and a moveback to support at 1,350. This would be an acceptable moveif the market continued down over the next couple of days.

But if this test failed the first time, the market would bevery close to the meeting point of trendlines 5 and 10 — amore neutral pattern that would call for a long straddle.Figure 6 and Table 1 give you a quick overview of how andwhen to place these and a few other basic option strate-gies.��


Different chart patterns and the option strategies to use to capitalize on them.

TABLE 1 — MATCHING UP: CHART PATTERNS AND OPTION STRATEGIES

Volatility Strategy Implementation Suggested chart patterns

Long call: Buy one or more calls with After breaking through a neckline andthe same strike price. (preferably) also after a test of support.

Vertical debit Buy one or more calls and sell In anticipation of breaking through a call spread: an equal number of calls with a neckline or consolidation pattern.

higher strike price.

Long straddle: Buy one or more calls and an In anticipation of a breakout of a horizontalequal number of puts with the consolidation area or symmetrical triangle same strike price and expiration. (either direction), or a test of a major

trendlines.

Vertical debit Buy one or more puts and sell In anticipation of breaking through a put spread: an equal number of puts with neckline or consolidation pattern.

a lower strike price.

Long put: Buy one or more puts with After breaking through a neckline and the same strike price. (preferably) also after a test of resistance.

Short put: Sell one or more puts with the After breaking through a neckline and same strike price. (preferably) also after a test of support.

Vertical credit Buy one or more puts and sell In anticipation of breaking through a necklineput spread: an equal number of puts with or consolidation pattern.

a higher strike price.

Short straddle: Sell one or more calls and an When moving into (or when expecting toequal number of puts with the stay within) a horizontal consolidation areasame strike price and expiration. or symmetrical triangle.

Vertical credit Buy one or more calls, and sell In anticipation of breaking through a neckline call spread: an equal number of calls with a or consolidation pattern.

lower strike price.

Short call: Sell one or more calls with the After breaking through a neckline and same strike price. (preferably) also after a test of resistance.

Higher

volatility

expected

Lower

volatility

expected

OPTIONS STRATEGY LABOPTIONS TRADING SYSTEM LAB

Market: Options on the S&P 500 futures (SP).

System concept: This year, an article series in ActiveTrader is exploring the challenging process of designing a

trading system — from picking markets, uncovering tradeopportunities, testing and interpreting performance, con-trolling risk, and finally, trading with real money. Theselected strategy identifies short-term pullbacks, or weak-

ness, in daily prices of the S&P 500tracking stock (SPY) and goes long inanticipation of a quick rebound.

When picking markets, we dis-missed stock options because of theircomplications — time value, strike-price selection, and illiquidity. But thisOptions Lab tests whether the basicpullback pattern could be profitable bypurchasing at-the-money (ATM) callson the S&P 500 futures (SP) fromMarch 2001 to March 2009. (For a testof E-Mini S&P 500 futures, see “Nervesof steel pullback system,” Futures &Options Trader, October 2008.)

The system’s original entry rule hastwo parts: a series of lower highs,lower lows, and lower closes, and a 2-percent decline from the low two daysago to today’s low. Together, the rulesare designed to enter trades after con-secutive down moves, culminating ina large drop (2 percent) that shouldidentify an oversold market.

The system exits using a simpleseven-day momentum calculation(below) or it exits after 10 tradingdays. Momentum signals appearwhen the current close is above theclose seven days ago and is in theupper 25 percent of the high-lowrange of the past seven days:

Seven-day momentum = (close today-lowest(low,7))/(highest(high,7)-lowest(low,7))

Figure 1 shows the potentialgain and loss of a March ATM callon the S&P 500 futures (SPH09)bought at the open on March 3,2009 and closed eight days later(dotted and dashed lines, respec-tively). The solid line shows thetrade if it was held until March 20expiration. March S&P 500 futures


Source: OptionVue

FIGURE 1 — LONG CALL — RISK PROFILE

The basic pullback system gained 38.5 percent during the eight-year test period,although it suffered a 28.6-percent drawdown from August 2008 to January 2009.

Source: OptionVue

FIGURE 2 — PULLBACK PERFORMANCE

The pullback system bought a March 710 call when the S&P 500 futures traded at710.20 on March 3, 2009. The trade will be profitable on the March expiration dateas long as the S&P 500 is above 742.

OPTIONS TRADING SYSTEM LAB

Buying calls on pullbacks in S&P 500 futures


opened at 710.20 on March 3, and the system purchased oneMarch 710 call with 17 days remaining to expiration. Tosimply break even, the underlying must rally 19.05 points(2.68 percent) during the next eight days, assuming volatil-ity doesn’t change; otherwise, the position will lose money.The trade’s odds of success are just 34 percent.

Trade rules:

Buy one ATM call in the first expiration month with at least10 days remaining on the next day’s open when:

1. Today’s low is below yesterday’s low and yesterday’s low is below the previous day’s low.

2. Today’s high is below yesterday’s high and yesterday’s high is below the previous day’s high.

3. Today’s close is below yesterday’s close, yesterday’s close is below the previous day’s close, and the previous day’s close is below the close the day before that.

4. Today’s low is at least 2 percent below the low two days ago.

5. Take up to five consecutive signals. 6. Exit when the seven-day momentum calculation is

0.75 or higher.7. Exit any remaining open positions after 10 days on

the close.

Test details:

• Continuous daily chart for E-Mini S&P 500 futures was used to generate entry and exit signals.

• The initial account size was $95,000.

• ATM is defined as the call option with the most time premium.

• Daily closing prices were used. Trades were executed at the bid and ask, when possible. Otherwise, theoretical prices were used.

• Commissions were $5 plus $1 per option trade.

Test data: System was tested on the CME’s S&P 500futures options.

Test period: March 23, 2001 to March 11, 2009.

Test results: Figure 2 tracks the pullback system’s per-formance since March 2001. It remained profitable, butendured a large drawdown of $53,608 from late July 2008 toearly March 2009.

Statistically, if you buy an ATM call, you should makemoney only 33 percent of the time, but this system gainedground more often than expected (55 percent). This sug-gests it has a trading edge, although traders need to figureout how to manage the risk of its large drawdowns, adilemma we addressed in the August issue of Active Trader.

Note: This test included minimal commissions, but larger fees andbad fills will likely affect performance.

— Steve Lentz and Jim Graham of OptionVue

LEGEND: Net return – Gain or loss at end of test period.Percentage return – Gain or loss on a percentage basis.Annualized return – Gain or loss on a annualized percentagebasis.No. of trades – Number of trades generated by the system.Winning/losing trades – Number of winners and losers generated by the system.Win/loss – The percentage of trades that were profitable.Avg. trade – The average profit for all trades.Largest winning trade – Biggest individual profit generated bythe system.Largest losing trade – Biggest individual loss generated by the system.Avg. profit (winners) – The average profit for winning trades.Avg. loss (losers) – The average loss for losing trades.Avg. hold time (winners) – The average holding period for winning trades (in days).Avg. hold time (losers) – The average holding period for losingtrades (in days).Max consec. win/loss – The maximum number of consecutive winning and losing trades.

Option System Analysis strategies are tested using OptionVue’s

BackTrader module (unless otherwise noted).

If you have a trading idea or strategy that you’d like to see tested,

please send the trading and money-management rules to

[email protected].

STRATEGY SUMMARY

Net return: $36,608.00

Percentage return: 38.5%

Annualized return: 4.8%

No. of trades: 53

Winning/losing trades: 29/24

Win/loss: 55%

Avg. trade: $690.72

Largest winning trade: -$17,363.00

Largest losing trade: -$12,387.00

Avg. profit (winners): $4,869.47

Avg. loss (losers): -$4,358.60

Avg. hold time (winners): 5

Avg. hold time (losers): 12

Max. consec. win/loss: 4/4



The U.S. Senate voted May 19 to approve GaryGensler as chairman of the Commodity FuturesTrading Commission (CFTC). The full Senate confir-

mation hearing had been delayed for months because a holdon the process by dissenting senators.

Any senator can delay a Senate vote by placing a “hold” ona confirmation hearing, prompting further discussion. Sen.Bernie Sanders, I-Vt., who issued a hold on Gensler’s nomi-nation vote, said he did so because of Gensler’s 18 yearsworking as an executive with Goldman Sachs and for his rolein deregulating the financial services industry during histenure at the Treasury Department, where he worked asUnder Secretary of Domestic Finance, from 1999 to 2001.

“I did not believe that Mr. Gensler was the right person atthe right time to help this country out of the financial crisis weare in today,” Sanders said in a statement he released on theday of Gensler’s approval. Sanders’ hold had been secondedby Sen. Maria Cantwell, D-Wash.

The senators eventually lifted their holds after Gensleraddressed several key issues in discussions with Sanders. Inhis response, Gensler wrote, “I believe we must urgentlymove to enact a broad regulatory regime that covers the entireover-the-counter-derivatives marketplace.”

Gensler also suggested several reforms for derivatives-dealer regulation, including conservative capital and marginrequirements, and stricter requirements for record keepingand reporting. Gensler also stated he would work to mandatethe registration of hedge-fund advisors, review all previouslygranted registration exemptions, and close the “London loop-hole” by requiring foreign futures exchanges operating in theU.S. to comply with U.S. position limits andadhere to the same reporting and transparency

requirements as U.S. exchanges.

Cap-and-trade regulationApproved by the House Committee on Energy andCommerce on May 21, the Waxman-Markey bill, also knownas “The American Clean Energy and Security Act,” could pro-vide Gensler and the CFTC with the means to turn many ofhis regulatory goals into reality. The bill, which outlines aframework for a U.S. carbon cap-and-trade system, takes newstrides in permitting CFTC oversight of energy derivativesmarkets. A cap-and-trade system places a limit on the amountof carbon pollution a business can emit, but allows them tobuy permits to exceed these limits from other businesses thatemit less than the pollution threshold.

Scheduled for a full house vote by the end of the summer,the bill would extend CFTC authority to all energy derivativestransactions, including swaps and OTC transactions, andwould render any energy-market exemptions issued prior tothe enactment of the bill null and void. Also, unless a transac-tion is granted exemption from the CFTC after the bill is inplace, all transactions will be settled and cleared throughCFTC-regulated exchanges.

The CFTC would also be charged with setting position lim-its and publicly publishing the names of entities that exceedthose limits. Furthermore, the bill would completely bannaked credit default swaps, which are transactions involvingentities that do not have an actual stake in the correspondingmarket — one of the smoking guns of the 2008 financial col-lapse. The bill would also extend the CFTC’s new authority toforeign exchanges transacting U.S. energy derivatives.�

INDUSTRY NEWS

Source: Barclay Hedge (http://www.barclayhedge.com) Based on estimates of the composite of allaccounts or the fully funded subset method. Does not reflect the performance of any singleaccount. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE.

Top 10 option strategy traders ranked by April 2009 return. (Managing at least $1 million as of April 30, 2009.)

April 2009 YTD $ underRank Trading advisor return return mgmt.

1. Carter Road LLC 18.1 24.54 1.8

2. ACE Investment Strategists (DPC) 16.36 35.25 10.5

3. Washington (Singleton Fund) 10.12 19.73 44.3

4. LJM Partners (Aggr. Premium Writing) 8.75 12.87 25.6

5. Kingsview Mgmt (Retail) 7.49 12.03 1.4

6. LJM Partners (LJM Fund Ltd) 5.75 13 5.1

7. Kingdom Trading (Short Option) 4.44 9.99 1.1

8. Harbor Assets 4.3 11.87 3.8

9. Quiddity (Earnings Diversification) 3.5 8.56 30.0

10. Censura Futures Mgmt. (TEOW) 3.25 7.91 20.9

MANAGED MONEY

Gensler approved as CFTC headPresident Obama’s nominee cleared a roadblock to Senate approval by making some big promises for

the CFTC. A new bill could put those promises to the test.

PFG buys Alaron

O n May 20 futures brokeragePeregrine Financial Group (PFG)agreed to purchase the customer

accounts of competitor Alaron TradingCorporation for an undisclosed amount. Bothfirms are based in Chicago and have been inbusiness nearly 20 years. The deal will report-edly give PFG roughly $425 million in customerassets.

Peregrine says it intends to keep at leastsome of Alaron’s employees, including CEOand chairman Steve Greenberg. The acquiredcustomer accounts will be folded into a newdivision called ATD.�

http://www.barclayhedge.com


The current option Penny Pilot Program, which test-ed trading equity option in penny increments, wasscheduled to expire in March, but termination was

pushed back to July because of differing opinions about itsresults.

The Securities and Exchange Commission (SEC) initiatedthe program in January 2007 with 13 equity options in amove to tighten spreads and reduce transaction costs.Options priced below $3 began being quoted in pennies,while those costing more than $3 were quoted in nickels.Stocks have been quoted in penny increments since 2001.

Initial results were promising, and the program expand-ed over time to include more than 60 stocks and exchange-traded funds.

However, according to the Chicago Board OptionExchange’s (CBOE) March report on the program, resultsare mixed. For example, although the exchange found theprogram had a positive impact on spreads in the reviewperiod from August 2008 through January 2009, liquidity atbest bid/offer prices actually decreased. The report alsostated that volume increases in the program’s participatingoptions has mostly come from market makers, while cus-

tomer volume growth has generally lagged overall volumegrowth.

Based on these results, the CBOE’s report suggests intro-ducing penny pricing for all option contracts, but reducingthe penny-quote threshold from $3 to $1. According to theCBOE, expanding the program with the original $3 thresh-old would flood the exchanges with quote data and wouldbe detrimental to the industry: “[I]n this time of economicunrest and uncertainty, CBOE believes that an aggressiveexpansion of the Pilot Program in its current form, as someare recommending, would be imprudent and could have apotentially long-term negative impact on the options indus-try.”

However, the NYSE Arca, an options trading arm ofNYSE Euronext, which reported similar results in itsreports on the program, has requested the SEC continue theprogram as-is, and to also add the top 300 most activelytraded option classes not already in the program. This planwould be implemented by phasing in 75 new classes at atime over four quarters beginning in July.

The SEC is accepting comments on the NYSE’s propos-al.�

CME Group combinesNYMEX trading floors

T he CME Group completed the inte-gration of the NYMEX’s energy andmetals futures and options trading

pits onto a single floor on May 18. TheChicago-based CME Group acquired the NewYork exchange in a multi-billion dollar deal inAugust 2008. The floor merger keeps theexchange on schedule for the integration time-line proposed when the acquisition was com-pleted last year.

“We are confident that combining severalmarkets into our trading rings will give mem-bers and customers access to greater liquidityon our New York trading floor,” CME GroupChairman Terry Duffy said in a statement.

The next step is to merge the twoexchanges’ clearing services, a processscheduled for completion in the third quarter.Since the August acquisition, the exchanges’combined average daily volume has dropped16.8 percent through April. However, CMEGroup’s first-quarter financial results posted 4-percent growth over the previous year.�

Penny Pilot Program’s future uncertainOptions exchanges have conflicting views on how the program should continue.

http://www.esignal.com/offer/ot

American style: An option that can be exercised at anytime until expiration.

Assign(ment): When an option seller (or “writer”) isobligated to assume a long position (if he or she sold a put)or short position (if he or she sold a call) in the underlyingstock or futures contract because an option buyer exercisedthe same option.

At the money (ATM): An option whose strike price isidentical (or very close) to the current underlying stock (orfutures) price.

Backspreads and ratio spreads are leveraged posi-tions that involve buying and selling options in differentproportions, usually in 1:2 or 2:3 ratios. Backspreads con-tain more long options than short ones, so the potentialprofits are unlimited and losses are capped. By contrast,ratio spreads have more short options than long ones andhave the opposite risk profile.

Note: These labels are not set in stone. Some tradersdescribe either position as option trades with long andshort legs in different proportions.

Bear call spread: A vertical credit spread that consistsof a short call and a higher-strike, further OTM long call inthe same expiration month. The spread’s largest potentialgain is the premium collected, and its maximum loss is lim-ited to the point difference between the strikes minus thatpremium.

Bear put spread: A bear debit spread that contains putswith the same expiration date but different strike prices.You buy the higher-strike put, which costs more, and sellthe cheaper, lower-strike put.

Bull call spread: A bull debit spread that contains callswith the same expiration date but different strike prices.You buy the lower-strike call, which has more value, andsell the less-expensive, higher-strike call.

Bull put spread (put credit spread): A bull creditspread that contains puts with the same expiration date, butdifferent strike prices. You sell an OTM put and buy a less-expensive, lower-strike put.

Calendar spread: A position with one short-term shortoption and one long same-strike option with more timeuntil expiration. If the spread uses ATM options, it is market-neutral and tries to profit from time decay.However, OTM options can be used to profit from both

a directional move and time decay.

Call option: An option that gives the owner the right, butnot the obligation, to buy a stock (or futures contract) at afixed price.

The Commitments of Traders report: Publishedweekly by the Commodity Futures Trading Commission(CFTC), the Commitments of Traders (COT) report breaksdown the open interest in major futures markets. Clearingmembers, futures commission merchants, and foreign bro-kers are required to report daily the futures and optionspositions of their customers that are above specific report-ing levels set by the CFTC.

For each futures contract, report data is divided into three“reporting” categories: commercial, non-commercial, andnon-reportable positions. The first two groups are thosewho hold positions above specific reporting levels.

The “commercials” are often referred to as the largehedgers. Commercial hedgers are typically those who actu-ally deal in the cash market (e.g., grain merchants and oilcompanies, who either produce or consume the underlyingcommodity) and can have access to supply and demandinformation other market players do not.

Non-commercial large traders include large speculators(“large specs”) such as commodity trading advisors (CTAs)and hedge funds. This group consists mostly of institution-al and quasi-institutional money managers who do not dealin the underlying cash markets, but speculate in futures ona large-scale basis for their clients.


KEY CONCEPTS

The option “Greeks”

Delta: The ratio of the movement in the option price forevery point move in the underlying. An option with adelta of 0.5 would move a half-point for every 1-pointmove in the underlying stock; an option with a delta of1.00 would move 1 point for every 1-point move in theunderlying stock.

Gamma: The change in delta relative to a change in theunderlying market. Unlike delta, which is highest fordeep ITM options, gamma is highest for ATM optionsand lowest for deep ITM and OTM options.

Rho: The change in option price relative to the changein the interest rate.

Theta: The rate at which an option loses value each day(the rate of time decay). Theta is relatively larger forOTM than ITM options, and increases as the option getscloser to its expiration date.

Vega: How much an option’s price changes per a one-percent change in volatility.


The final COT category is called the non-reportable posi-tion category — otherwise known as small traders — i.e.,the general public.

Correlation coefficient, sometimes referred to simplyas correlation, refers to the degree of similarity between twovariables. In the markets, correlation is typically used tomeasure how close the relationship is between two priceseries (e.g., two distinct stocks or markets), between an indi-vidual stock (or trading fund) and an index, and so on.

Correlation coefficients range between -1.00 and +1.00,with +1.00 representing perfect positive correlation (i.e.,two variables moving precisely in tandem); -1.00 representsperfect negative correlation (i.e., two variables movingexactly opposite to one another). A correlation coefficient ofzero means the two variables have no discernible relation.

The site http://davidmlane.com/hyperstat/index.htmloffers relatively easy-to-digest definitions of this and otherstatistical terms.

Covered call: Shorting an out-of-the-money call optionagainst a long position in the underlying market. An exam-ple would be purchasing a stock for $50and selling a call option with a strikeprice of $55. The goal is for the marketto move sideways or slightly higherand for the call option to expire worth-less, in which case you keep the premi-um.

Credit spread: A position that col-lects more premium from short optionsthan you pay for long options. A creditspread using calls is bearish, while acredit spread using puts is bullish.

Debit spread: An options spreadthat costs money to enter, because thelong side is more expensive that theshort side. These spreads can be verti-cals, calendars, or diagonals.

Delivery period (delivery dates):The specific time period during whicha delivery can occur for a futures con-tract. These dates vary from market tomarket and are determined by theexchange. They typically fall during themonth designated by a specific contract— e.g. the delivery period for March T-notes will be a specific period in March.

Diagonal spread: A position consisting of options withdifferent expiration dates and different strike prices — e.g.,a December 50 call and a January 60 call.

European style: An option that can only be exercised atexpiration, not before.

Exercise: To exchange an option for the underlyinginstrument.

Expiration: The last day on which an option can be exer-cised and exchanged for the underlying instrument (usual-ly the last trading day or one day after).

In the money (ITM): A call option with a strike pricebelow the price of the underlying instrument, or a putoption with a strike price above the underlying instru-ment’s price.

Intrinsic value: The difference between the strike pricecontinued on p. 36

http://davidmlane.com/hyperstat/index.html



of an in-the-money option and the underlying asset price. Acall option with a strike price of 22 has 2 points of intrinsicvalue if the underlying market is trading at 24.

Naked option: A position that involves selling an unpro-tected call or put that has a large or unlimited amount ofrisk. If you sell a call, for example, you are obligated to sellthe underlying instrument at the call’s strike price, whichmight be below the market’s value, triggering a loss. If yousell a put, for example, you are obligated to buy the under-lying instrument at the put’s strike price, which may be wellabove the market, also causing a loss.

Given its risk, selling naked options is only for advancedoptions traders, and newer traders aren’t usually allowedby their brokers to trade such strategies.

Naked (uncovered) puts: Selling put options to collectpremium that contains risk. If the market drops below theshort put’s strike price, the holder may exercise it, requiringyou to buy stock at the strike price (i.e., above the market).

Near the money: An option whose strike price is closeto the underlying market’s price.

Open interest: The number of options that have notbeen exercised in a specific contract that has not yet expired.

Out of the money (OTM): A call option with a strikeprice above the price of the underlying instrument, or a putoption with a strike price below the underlying instru-ment’s price.

Parity: An option trading at its intrinsic value.

Physical delivery: The process of exchanging a physicalcommodity (and making and taking payment) as a result ofthe execution of a futures contract. Although 98 percent ofall futures contracts are not delivered, there are market par-ticipants who do take delivery of physically settled con-tracts such as wheat, crude oil, and T-notes. Commoditiesgenerally are delivered to a designated warehouse; T-notedelivery is taken by a book-entry transfer of ownership,although no certificates change hands.

Premium: The price of an option.

Put option: An option that gives the owner the right, butnot the obligation, to sell a stock (or futures contract) at afixed price.

Put ratio backspread: A bearish ratio spread that con-

tains more long puts than short ones. The short strikes arecloser to the money and the long strikes are further from themoney.

For example, if a stock trades at $50, you could sell one$45 put and buy two $40 puts in the same expiration month.If the stock drops, the short $45 put might move into themoney, but the long lower-strike puts will hedge some (orall) of those losses. If the stock drops well below $40, poten-tial gains are unlimited until it reaches zero.

Put spreads: Vertical spreads with puts sharing the sameexpiration date but different strike prices. A bull put spreadcontains short, higher-strike puts and long, lower-strikeputs. A bear put spread is structured differently: Its longputs have higher strikes than the short puts.

Simple moving average: A simple moving average(SMA) is the average price of a stock, future, or other mar-ket over a certain time period. A five-day SMA is the sum ofthe five most recent closing prices divided by five, whichmeans each day’s price is equally weighted in the calcula-tion.

Straddle: A non-directional option spread that typicallyconsists of an at-the-money call and at-the-money put withthe same expiration. For example, with the underlyinginstrument trading at 25, a standard long straddle wouldconsist of buying a 25 call and a 25 put. Long straddles aredesigned to profit from an increase in volatility; short strad-dles are intended to capitalize on declining volatility. Thestrangle is a related strategy.

Strangle: A non-directional option spread that consists ofan out-of-the-money call and out-of-the-money put withthe same expiration. For example, with the underlyinginstrument trading at 25, a long strangle could consist ofbuying a 27.5 call and a 22.5 put. Long strangles aredesigned to profit from an increase in volatility; short stran-gles are intended to capitalize on declining volatility. Thestraddle is a related strategy.

Strike (“exercise”) price: The price at which an under-lying instrument is exchanged upon exercise of an option.

Support and resistance: Support is a price level thatacts as a “floor,” preventing prices from dropping belowthat level. Resistance is the opposite: a price level that actsas a “ceiling;” a barrier that prevents prices from risinghigher.

Support and resistance levels are a natural outgrowth ofthe interaction of supply and demand in any market. For

KEY CONCEPTS

example, increased demand for a stock will cause its priceto rise, creating an uptrend. But when price has risen to acertain level, traders and investors will take profits andshort sellers will come into the market, creating “resistance”to further price increases. Price may retreat from andadvance to this resistance level many times, sometimeseventually breaking through it and continuing the previoustrend, other times reversing completely.

Support and resistance should be thought of more as gen-eral price levels rather than precise prices. For example, if astock makes a low of 52.15, rallies slightly, then declinesagain to 52.15, then rallies again, a subsequent move downto 52 does not violate the “support level” of 52.15. In thiscase, the fact that the stock retraced once to the exact pricelevel it had established before is more of a coincidence thananything else.

Time decay: The tendency of time value to decrease at anaccelerated rate as an option approaches expiration.

Time spread: Any type of spread that contains shortnear-term options and long options that expire later. Bothoptions can share a strike price (calen-dar spread) or have different strikes(diagonal spread).

Time value (premium): Theamount of an option’s value that is afunction of the time remaining untilexpiration. As expiration approaches,time value decreases at an acceleratedrate, a phenomenon known as “timedecay.”

Vertical spread: A position con-sisting of options with the same expi-ration date but different strike prices(e.g., a September 40 call option and aSeptember 50 call option).

VIX: The Volatility Index (VIX) meas-ures the implied volatility of S&P 500index options traded on the ChicagoBoard Option Exchange (CBOE). TheVIX is designed to reflect the marketexpectation of near-term (in this case,30-day) volatility and is a commonlyreferenced gauge of the stock market’s“fear level.”

The original VIX, launched in 1990,was derived from eight near-term at-

the-money S&P 100 (OEX) options (calls and puts) using theBlack-Scholes options pricing model.

The VIX underwent a major transformation in late 2003.The current index is derived from both at-the-money andout-of-the-money S&P 500 (SPX) calls and puts to make theindex better represent the full range of volatility. At thesame time the CBOE applied the new calculation method tothe CBOE NDX Volatility Index (VXN), which reflects thevolatility of the Nasdaq 100 index.

The exchange still publishes the original VIX calculation,which can be found under the ticker symbol VXO. For moreinformation about the VIX and its calculation, visithttp://www.cboe.com/vix.

Volatility: The level of price movement in a market.Historical (“statistical”) volatility measures the price fluctu-ations (usually calculated as the standard deviation of clos-ing prices) over a certain time period — e.g., the past 20days. Implied volatility is the current market estimate offuture volatility as reflected in the level of option premi-ums. The higher the implied volatility, the higher the optionpremium.


http://www.cboe.com/vix



The following table summarizes the trading activity in the most actively traded futures contracts. The information does NOT constitutetrade signals. It is intended only to provide a brief synopsis of each market’s liquidity, direction, and levels of momentum and volatility.See the legend for explanations of the different fields. Volume figures are for the most active contract month in a particular market andmay not reflect total volume for all contract months. Note: Average volume and open-interest data includes both pit and side-by-side electronic contracts (where applicable).

LegendVolume: 30-day average daily volume, inthousands (unless otherwise indicated).OI: Open interest, in thousands (unless other-wise indicated). 10-day move: The percentage price movefrom the close 10 days ago to today’s close.20-day move: The percentage price movefrom the close 20 days ago to today’s close.60-day move: The percentage price movefrom the close 60 days ago to today’s close.The “rank” fields for each time window (10-

day moves, 20-day moves, etc.) show the per-centile rank of the most recent move to a cer-tain number of the previous moves of thesame size and in the same direction. Forexample, the rank for 10-day move showshow the most recent 10-day move comparesto the past twenty 10-day moves; for the 20-day move, the rank field shows how the mostrecent 20-day move compares to the pastsixty 20-day moves; for the 60-day move, therank field shows how the most recent 60-daymove compares to the past one-hundred-twenty 60-day moves. A reading of 100 per-

cent means the current reading is larger thanall the past readings, while a reading of 0 per-cent means the current reading is smaller thanthe previous readings. These figures provideperspective for determining how relativelylarge or small the most recent price move iscompared to past price moves.Volatility ratio/rank: The ratio is the short-term volatility (10-day standard deviation ofprices) divided by the long-term volatility (100-day standard deviation of prices). The rank isthe percentile rank of the volatility ratio overthe past 60 days.

This information is for educational purposes only. Futures & Options Trader provides this data in good faith, but it cannot guarantee its accuracy or timeliness. Futures & OptionsTrader assumes no responsibility for the use of this information. Futures & Options Trader does not recommend buying or selling any market, nor does it solicit orders to buyor sell any market. There is a high level of risk in trading, especially for traders who use leverage. The reader assumes all responsibility for his or her actions in the market.

FUTURES SNAPSHOT (as of May 27)

10-day move/ 20-day move/ 60-day move/ VolatilityMarket Symbol Exchange Volume OI rank rank rank ratio/rankE-Mini S&P 500 ES CME 2.34 M 2.56 M -1.57% / 25% 4.78% / 23% 26.51% / 100% .16 / 0%10-yr. T-note TY CME 626.4 1.03 M -3.25% / 100% -3.34% / 100% -3.26% / 97% .75 / 100%5-yr. T-note FV CME 336.3 797.9 -1.54% / 100% -1.56% / 92% -2.35% / 95% .58 / 100%E-Mini Nasdaq 100 NQ CME 313.3 276.6 1.37% / 17% 3.20% / 19% 29.28% / 100% .23 / 10%Crude oil CL NYMEX 250.6 256.7 7.82% / 40% 27.10% / 83% 58.03% / 93% .29 / 58%Eurodollar* ED CME 196.6 973.2 0.07% / 10% 0.25% / 63% 0.59% / 43% .29 / 67%30-yr. T-bond US CME 190.3 675.9 -4.75% / 100% -5.71% / 98% -6.46% / 71% .51 / 100%Eurocurrency EC CME 166.5 114.0 2.05% / 32% 5.86% / 72% 10.71% / 100% .51 / 88%Mini Dow YM CME 164.4 53.4 -1.65% / 67% 4.14% / 22% 22.19% / 100% .15 / 12%E-Mini Russell 2000 TF CME 149.8 393.0 3.19% / 18% -0.02% / 0% 36.74% / 100% .20 / 5%2-yr. T-note TU CME 126.1 477.8 0.01% / 0% 0.06% / 53% -0.69% / 59% .20 / 7%Corn C CME 108.5 283.1 -0.33% / 0% 13.60% / 85% 21.64% / 96% .16 / 0%Soybeans S CME 84.0 162.0 6.23% / 53% 19.97% / 100% 40.64% / 100% .23 / 25%British pound BP CME 79.8 86.4 5.07% / 88% 9.75% / 100% 14.31% / 100% .67 / 100%Gold 100 oz. GC NYMEX 78.2 209.7 3.39% / 70% 6.89% / 96% 1.62% / 10% .37 / 97%Japanese yen JY CME 77.4 80.6 1.23% / 15% 1.23% / 25% 2.68% / 7% .17 / 18%Natural gas NG NYMEX 75.3 81.5 -18.23% / 86% 5.76% / 26% -12.38% / 9% .49 / 95%Sugar SB ICE 54.9 295.5 0.32% / 5% 12.32% / 55% 23.69% / 98% .23 / 13%Canadian dollar CD CME 54.2 69.8 4.20% / 63% 9.33% / 100% 15.47% / 100% .62 / 83%Australian dollar AD CME 48.4 77.5 2.41% / 21% 10.83% / 93% 24.06% / 100% .29 / 28%Wheat W CME 39.4 127.2 5.57% / 32% 22.57% / 100% 23.64% / 100% .40 / 45%Soybean oil BO CME 36.0 100.2 -4.71% / 88% 8.34% / 47% 24.62% / 91% .16 / 0%E-Mini S&P MidCap 400 ME CME 35.3 111.9 -0.93% / 11% 3.20% / 7% 32.27% / 100% .21 / 2%Swiss franc SF CME 33.8 31.2 1.70% / 21% 5.15% / 91% 8.31% / 100% .52 / 90%RBOB gasoline RB NYMEX 33.7 50.9 13.42% / 56% 35.34% / 94% 47.08% / 79% .32 / 68%Soybean meal SM CME 31.0 62.5 11.39% / 95% 23.82% / 98% 48.08% / 100% .38 / 63%Heating oil HO NYMEX 30.2 39.6 3.63% / 31% 18.61% / 89% 35.66% / 100% .36 / 75%S&P 500 index SP CME 25.6 431.8 -1.58% / 25% 4.78% / 23% 26.51% / 100% .16 / 0%Silver 5,000 oz. SI NYMEX 18.3 47.7 4.57% / 17% 19.63% / 100% 13.73% / 41% .32 / 65%Copper HG NYMEX 14.8 57.3 1.68% / 13% 10.67% / 42% 39.91% / 71% .15 / 5%Live cattle LC CME 12.2 51.2 -0.99% / 31% 0.52% / 14% -1.88% / 20% .15 / 0%Nikkei 225 index NK CME 11.0 28.3 0.21% / 0% 8.50% / 58% 32.67% / 100% .18 / 15%Mexican peso MP CME 10.0 46.4 0.33% / 8% 5.41% / 57% 17.18% / 100% .21 / 22%Crude oil e-miNY QM NYMEX 10.0 4.3 7.82% / 40% 27.10% / 85% 58.03% / 93% .29 / 60%Coffee KC ICE 8.7 51.0 6.19% / 32% 18.76% / 100% 21.94% / 98% .50 / 42%Mini-sized gold YG CME 5.8 3.7 2.83% / 55% 6.25% / 96% 1.05% / 5% .35 / 93%Lean hogs LH CME 5.7 17.9 -5.30% / 10% 3.12% / 26% 8.30% / 60% .19 / 2%Cocoa CC ICE 5.6 41.0 5.55% / 100% 4.37% / 21% 13.38% / 55% .40 / 65%U.S. dollar index DX ICE 5.4 24.3 -2.67% / 40% -5.01% / 86% -9.67% / 98% .53 / 83%Fed funds FF CME 4.3 45.7 -0.01% / 0% 0.00% / 0% 0.09% / 18% .05 / 40%Natural gas e-miNY QG NYMEX 2.7 5.6 -18.23% / 86% 5.76% / 26% -12.38% / 10% .47 / 95%Nasdaq 100 ND CME 2.6 23.0 1.37% / 17% 3.20% / 19% 29.28% / 100% .23 / 10%New Zealand dollar NE CME 2.3 16.4 2.15% / 6% 10.82% / 69% 25.51% / 100% .37 / 65%E-Mini eurocurrency ZE CME 2.2 1.9 2.05% / 32% 5.86% / 72% 10.71% / 100% .51 / 88%Mini-sized silver YI CME 1.9 1.8 3.82% / 6% 18.66% / 100% 12.72% / 38% .33 / 67%Dow Jones Ind. Avg. DJ CME 1.6 12.2 -1.65% / 67% 4.14% / 22% 22.19% / 100% .15 / 12%Mini-sized soybeans YK CME 1.4 5.0 6.23% / 53% 19.97% / 100% 40.64% / 100% .23 / 25%*Average volume and open interest based on highest-volume contract (Sept. 2009).


LEGEND:Options volume: 20-day average daily options volume (in thousands unless otherwise indicated).Open interest: 20-day average daily options open interest (in thousands unless otherwise indicated).IV/SV ratio: Overall average implied volatility of all options divided by statistical volatility of underlying instrument.10-day move: The underlying’s percentage price move from the close 10 days ago to today’s close.20-day move: The underlying’s percentage price move from the close 20 days ago to today’s close. The “rank” fields for each time window (10-day moves, 20-daymoves) show the percentile rank of the most recent move to a certain number of previous moves of the same size and in the same direction. For example, the “rank”for 10-day moves shows how the most recent 10-day move compares to the past twenty 10-day moves; for the 20-day move, the “rank” field shows how the mostrecent 20-day move compares to the past sixty 20-day moves.

OPTIONS RADAR (as of May 28)

MOST-LIQUID OPTIONS*Indices Symbol Exchange Options Open 10-day move / 20-day move / IV / IV / SV ratio —

volume interest rank rank SV ratio 20 days agoS&P 500 index SPX CBOE 155.4 1.26 M 2.59% / 56% 3.80% / 15% 27.8% / 24.8% 32.7% / 32.6%S&P 500 volatility index VIX CBOE 80.8 1.36 M -5.88% / 6% -12.22% / 42% 85.2% / 82.3% 68.4% / 75.5%Russell 2000 index RUT CBOE 44.5 474.0 4.32% / 20% 0.15% / 0% 37.1% / 35.1% 43% / 44.4%E-Mini S&P 500 futures ES CME 36.5 117.7 2.23% / 40% 4.14% / 13% 27.8% / 29.4% 32.8% / 36.8%Nasdaq 100 index NDX CBOE 14.1 147.1 6.01% / 75% 2.74% / 14% 28% / 26.4% 33.4% / 30.6%

StocksCitigroup C 635.3 12.69 M 7.62% / 15% 17.63% / 42% 110.4% / 94.6% 124% / 158.7%Bank of America BAC 334.8 3.57 M 2.63% / 0% 30.18% / 39% 76.6% / 108.1% 127.5% / 171.3%General Motors GM 130.6 2.22 M -7.44% / 40% -38.12% / 76% 257.5% / 177.2% 218% / 143.6%General Electric GE 97.5 2.55 M 2.17% / 13% 7.94% / 8% 52.4% / 52% 62% / 79.2%Wells Fargo WFC 75.5 1.24 M 2.36% / 13% 24.04% / 28% 68.7% / 95.7% 106.9% / 123.6%

FuturesEurodollar ED CME 151.1 5.54 M 0.08% / 10% 0.27% / 70% 81.5% / 68.9% 55.7% / 40.1%10-year T-notes TY CME 50.9 651.9 -3.36% / 100% -3.20% / 98% 10.4% / 6.9% 8.7% / 6.4%E-Mini S&P 500 futures ES CME 36.5 117.7 2.23% / 40% 4.14% / 13% 27.8% / 29.4% 32.8% / 36.8%10-year T-notes TY CME 31.4 653.6 -3.30% / 100% -3.14% / 95% 10.9% / 8.5% 8.6% / 7.8%Corn C CME 31.3 529.8 0.52% / 0% 6.83% / 33% 40.5% / 36% 43.7% / 34%

VOLATILITY EXTREMES**Indices - High IV/SV ratio

S&P 100 Index OEX CBOE 11.9 80.7 1.84% / 44% 3.86% / 24% 26.9% / 22.1% 32% / 29.3%S&P 500 futures SP CME 9.9 60.1 2.24% / 40% 4.14% / 13% 28.2% / 23.4% 32.9% / 31%Dow Jones index DJX CBOE 5.2 144.5 1.44% / 44% 2.66% / 11% 25.1% / 22.1% 29.7% / 29%S&P 500 index SPX CBOE 155.4 1.26 M 2.59% / 56% 3.80% / 15% 27.8% / 24.8% 32.7% / 32.6%S&P 100 index (European style) XEO CBOE 3.6 43.8 1.84% / 44% 3.86% / 23% 25.7% / 23.7% 30.9% / 31.1%

Indices - Low IV/SV ratioBanking index BKX PHLX 3.6 83.6 0.85% / 0% 9.61% / 10% 60.2% / 86.1% 83.3% / 114.8%Mini Nasdaq 100 index MNX CBOE 8.3 253.0 6.01% / 75% 2.74% / 13% 27.8% / 31.7% 33% / 32.9%E-Mini S&P 500 futures ES CME 36.5 117.7 2.23% / 40% 4.14% / 13% 27.8% / 29.4% 32.8% / 36.8%

Stocks - High IV/SV ratioSavient Pharma SVNT 7.7 92.7 13.41% / 100% 8.90% / 43% 211.6% / 67.4% 182.8% / 75.3%Fannie Mae FNM 1.2 51.4 -6.49% / 27% -8.86% / 36% 149.3% / 65.6% 151.7% / 110.1%Star Scientific STSI 3.7 97.5 18.41% / 100% -3.45% / 8% 212.7% / 103% 194.5% / 72.6%Sun Microsystems JAVA 8.6 696.9 1.23% / 20% -0.98% / 11% 16.3% / 8.4% 17% / 76.2%Tivo Inc. TIVO 2.5 44.4 -13.47% / 89% -15.05% / 91% 78.9% / 50.4% 84.7% / 47.8%

Stocks - Low IV/SV ratioData Domain DDUP 1.6 83.9 47.34% / 82% 53.32% / 89% 25.2% / 56.4% 43.2% / 69%Genworth Financial GNW 8.5 89.8 24.82% / 19% 133.33% / 83% 108.2% / 190.9% 127.5% / 153.3%Regions Financial RF 35.3 361.8 -14.47% / 46% -13.73% / 23% 102.8% / 177.2% 142.4% / 208.1%Vanda Pharma VNDA 3.7 35.9 11.57% / 22% 1331.68% / 100% 102.3% / 173.7% NA / 130.9%MGM Mirage MGM 25.7 244.9 -17.93% / 40% 15.53% / 0% 106.2% / 178.5% 199.1% / 244.4%

Futures - High IV/SV ratio5-year T-notes FV CME 5.3 122.6 -1.65% / 100% -1.51% / 87% 6.6% / 3.5% 5% / 3.3%10-yr T-notes TY CME 50.9 651.9 -3.36% / 100% -3.20% / 98% 10.4% / 6.9% 8.7% / 6.4%30-year T-bonds US CME 14.7 142.9 -4.31% / 94% -4.26% / 83% 17.6% / 11.7% 15.7% / 11%Coffee KC ICE 3.5 70.0 7.59% / 60% 17.42% / 96% 44.3% / 32.3% 38.7% / 30.8%Japanese yen JY CME 1.1 3.5 -1.46% / 100% 0.73% / 20% 14.3% / 10.8% 14.8% / 12.1%

Futures - Low IV/SV ratioOrange juice OJ ICE 5.2 28.1 1.55% / 35% 13.68% / 84% 37.7% / 42.6% 34.5% / 37.7%Soybean oil BO CME 4.0 84.5 -3.45% / 63% 5.82% / 24% 30% / 33.5% 34% / 34.4%Cotton CT ICE 3.5 53.3 -8.15% / 86% 1.67% / 4% 34% / 37.2% 36.4% / 41.5%Australian dollar AD CME 1.4 8.0 4.32% / 55% 8.00% / 69% 18.2% / 19.3% 19.5% / 18.9%E-Mini S&P 500 futures ES CME 36.5 117.7 2.23% / 40% 4.14% / 13% 27.8% / 29.4% 32.8% / 36.8%

* Ranked by volume ** Ranked based on high or low IV/SV values.


Options Watch: S&P telecom industry index stocks (as of May 27) Compiled by Tristan YatesThe following table summarizes the expiration months available for the 21 stocks in Standard and Poor’s telecommunications industry index(SPSITE), the best-performing market year-to-date among the S&P’s 19 industry indices (as of May 18). It also shows each stock’s average bid-ask spread for at-the-money (ATM) June options. The information does NOT constitute trade signals. It is intended only to provide a brief synop-sis of potential slippage in each option market.

Bid-askspread as %

Closing of underlyingStock Ticker price Call Put priceQualcomm Inc. QCOM X X X X X 42.43 0.03 0.03 0.06%Verizon Communications VZ X X X X X 28.95 0.02 0.02 0.06%AT&T Inc. T X X X X X 24.07 0.02 0.02 0.07%Cisco Systems CSCO X X X X X 18.22 0.02 0.02 0.08%Motorola Inc. MOT X X X X X 5.92 0.02 0.02 0.34%American Tower Corp. AMT X X X X X 30.63 0.13 0.10 0.37%Juniper Networks JNPR X X X X X 24.14 0.10 0.09 0.39%F5 Networks Inc. FFIV X X X X X 30.03 0.11 0.13 0.40%Corning Inc. GLW X X X X X X 14.62 0.06 0.09 0.51%Polycom Inc. PLCM X X X X X 17.25 0.10 0.10 0.58%Crown Castle Intl. Corp. CCI X X X X X 23.70 0.16 0.11 0.58%Leap Wireless International Inc. LEAP X X X X X 41.05 0.23 0.30 0.64%MetroPCS Communications Inc. PCS X X X X 17.00 0.14 0.11 0.74%Harris Corp. HRS X X X X X X 30.79 0.26 0.34 0.97%NII Holdings Inc. NIHD X X X X X X 18.79 0.16 0.21 1.00%Brocade Communications Systems BRCD X X X X X 7.19 0.06 0.09 1.04%SBA Communications Corp. SBAC X X X X X X 24.87 0.30 0.26 1.13%Sprint Nextel Corp. S X X X X X X 5.07 0.06 0.09 1.48%Tellabs Inc. TLAB X X X X X X 5.41 0.08 0.10 1.62%Telephone & Data Systems TDS X X X X 30.78 0.59 0.55 1.85%TW Telecom Inc. TWTC X X X X 11.82 0.23 0.21 1.85%Legend:Call: Four-day average difference between bid and ask prices for the front-month ATM call.Put: Four-day average difference between bid and ask prices for the front-month ATM put.Bid-ask spread as % of underlying price: Average difference between bid and ask prices for front-month, ATM call, and put divided by the underlying's closing price.

June

July

Aug

.

Sep

t.

Oct

.

Nov

.

Dec

.

Jan.

Jan.

2009 2010 2011 Bid-ask spreads

The Commitments of Traders (COT) report is publishedeach week by the Commodity Futures TradingCommission (CFTC). The report divides the open posi-tions in futures markets into three categories: commer-cials, non-commericals, and non-reportable.

Commercial traders, or hedgers, tend to operate in thecash market (e.g., grain merchants and oil companies thateither produce or consume the underlying commodity).Non-commercial traders are large speculators (“largespecs”) such as commodity trading advisors and hedgefunds — professional money managers who do not dealin the underlying cash markets but speculate in futureson a large-scale basis. Many of these traders are trend-fol-lowers. The non-reportable category represents smalltraders, or the general public.

Figure 1 shows the relationship between commercialsand large speculators on May 19. Positive values mean net commercial posi-tions (longs-shorts) are larger than net speculator holdings, based on their five-year historical relationship. Negative values mean large speculators have big-ger positions than the commercials.

In copper and British pound futures (HG and BP, respectively) in May, thecommercials held larger positions than speculators, a positive sign. On the otherhand, in Nikkei 225 and soybean futures (NK and S), this relationship wasswitched as speculators held bigger positions than commercials, which could beviewed as bearish. Despite these patterns, commercial-speculator relationshipsin all markets failed to reach historical extremes (i.e., readings of 100 or -100).�

– Compiled by Floyd Upperman

The largest positive readings represent markets in which net commercialpositions (longs-shorts) exceed net fund holdings in May. By contrast, thelargest negative values represent markets in which net fund holdings surpass net commercial positions.

FIGURE 1 — COT REPORT EXTREMES

For a list of contract names, see “Futures Snapshot.” Source: http://www.upperman.com

COT extremes

Legend: Figure 1 shows the difference between net commer-cial and net large spec positions (longs - shorts) for all 45 futuresmarkets, in descending order. It is calculated by subtracting thecurrent net large spec position from the net commercial positionand then comparing this value to its five-year range. The formula is:

a1 = (net commercial 5-year high - net commercial current)b1 = (net commercial 5-year high - net commercial 5-year low)

c1 = ((b1 - a1)/ b1 ) * 100

a2 = (net large spec 5-year high - net large spec current)b2 = (net large spec 5-year high - net large spec 5-year low)

c2 = ((b2 - a2)/ b2 ) * 100

x = (c1 - c2)

Option contracts traded

FUTURES & OPTIONS WATCH

http://www.upperman.com


� E*TRADE FINANCIAL has released E*TRADE Mobile Profor Apple’s iPhone and iPod touch. The application providesmany of the same interface, security, trading, and banking fea-tures available on etrade.com to customers via their iPhone oriPod touch. The application is available at no additional cost toall E*TRADE Securities customers via the Apple App Store.Mobile Pro reduces the steps needed to perform various tasksand provides customers with confirmation of transactionsbefore they are completed. Mobile Pro functionality includesaccess to bank and brokerage account details; free real-timestreaming stock and options quotes; the ability to trade stocksand options, including conditional orders; and the ability totransfer funds between brokerage and bank accounts, includingtransfers from outside financial institutions. To learn more andsee a demo of the platform, visit http://www.etrade.com/iphone.

� Open E Cry, LLC, a direct access brokerage firm, launchedOEC FX, an online foreign exchange trading service. With OECFX, Open E Cry now supports futures, futures options, and forextrading on a single platform. GAIN Capital provides Open E Crywith forex clearing and custody services. Open E Cry’s propri-etary trading software, OEC Trader, provides streaming quotes,depth of market, more than 15 advanced order types, and built-in charting tools. End user access is achieved through a down-loadable software interface or through a proprietary API.Traders can register for a free trial of OEC trader athttps://www.openecry.com (click on Software > Free PracticeAccount).

� Charles Schwab announced new options trading capabil-ities for active traders with several upgrades to its trading plat-forms, including new charting and screening tools. New featuresinclude: several new charting studies for options-specific techni-cal data (Implied Volatility and Put/Call Ratio); new optionsscreening capabilities for the Customizable Options Screenerincluding covered call, delta, and implied volatility screening;new historical option price charts and strategy profit/losscharts; and multi-leg trading enhancements, including No Bidand Good Till Canceled multi-leg orders. For more informationabout the active trading services at Charles Schwab, visithttp://www.schwabat.com.

� CME Group has launched clearing services for five newpetroleum swap futures contracts, new national balancing pointHenry Hub swap futures and options contracts, a new PJMWestern Hub 50 MW peak calendar month real-time LMP swapfutures contract, and calendar spread options for corn, wheat,soybeans, soybean meal, and soybean oil futures. The petroleumswap futures contracts and their commodity codes will be:ethanol (Platts) T1 FOB Rotterdam excluding duty (2M); ethanol(Platts) T2 FOB Rotterdam including duty (Z1); SingaporeMogas 92 unleaded (Platts, 1N); Singapore Mogas 92 unleaded(Platts) BALMO (1P); and FAME 0 (Argus) biodiesel FOBRotterdam (2L). Henry Hub commodity codes will be E2 for thefutures contract and V1 for the options contract. The PJMWestern Hub 50 MW peak calendar month real-time LMP swapcode is 4SN. These contracts are listed with, and subject to, therules and regulations of NYMEX, and will be available on the

CME Globex electronic trading platform. Grain calendar spreadoptions will be available on CME Globex and on the tradingfloors in the corn, wheat, soybean, soybean meal, and soybeanoil options pit. These contracts are listed with, and subject to, therules and regulations of the Chicago Board of Trade.

� IntercontinentalExchange (ICE) has introduced aone-minute tradable marker facility for ICE Brent Crude futuresand the ICE Gasoil futures contracts during the Asian tradingday. The new markers are the Singapore Brent and SingaporeGasoil markers. Timing of the markers will be the minute pre-ceding 16:30 local Singapore time (08:30 GMT/09:30 BST) andwill be tradable for the front-three contract months. A markerprice called the “Singapore Minute marker” for both Brent andGasoil futures will be a volume trade weighted average price oftrades executed between 16:29:00 and 16:29:59 hours localSingapore time (08:30 GMT/09:30 BST), and will be publishedfor the front-three contract months. Singapore marker tradesexecuted up to and including 16:29:59 local Singapore time willbe named “one minute Singapore Brent Marker Trades” and“one minute Singapore Gasoil Marker Trades” and will bereflected in both the ICE Electronic Trading System (ETS) andthe Trade Registration System (TRS) in a format similar to settle-ment trades. In addition to the markers, ICE is introducing afacility to allow premium and discount trades to be applied tothe markers, mirroring what is currently in existence for Trade atSettlement trades. ICE is also launching a tradable U.S. Gasoilmarker at 19:30 UK time (14:30 EDT). A premium and discounttrade facility will also be enabled for the London 16:30 BrentCrude futures tradable marker in response to customer demand.

� TraderInterviews.com, an online media site that fea-tures audio interviews with active traders, is offering a member-ship product. Members get access to more than 100 audio inter-views in the archives as well as free reports on setting profit tar-gets and improving price forecasting skills. Recent interviewsinclude a discussion with news trader Peter Farmer. Othersinclude a discussion of popular chart indicators a hedge-fundmanager is using during the volatile first and last hour of trad-ing, and an options trader who uses Excel spreadsheets to helpdetermine which expiration month and strike price to buy orsell. Visitors can sample free interviews and transcripts athttp://www.TraderInterviews.com.

� TraderPlanet.com, an interactive social networking sitefor active traders and investors, has partnered withBarchart.com to expand TraderPlanet’s offering of educationalresources. The content provided by Barchart.com consists ofcharts and market quotes. In exchange, TraderPlanet.com is pro-viding Barchart.com with market commentary from JimWyckoff and Darrell Jobman, senior analysts atTraderPlanet.com. The commentary will also be syndicated forInsideFutures, a subsidiary of Barchart.com.

Note: The New Products and Services section is a forum for industry businesses to announce new products and upgrades. Listings are adaptedfrom press releases and are not endorsements or recommendations from the Active Trader Magazine Group. E-mail press releases to [email protected]. Publication is not guaranteed.

NEW PRODUCTS AND SERVICES

http://www.etrade.com/iphone

https://www.openecry.com

http://www.schwabat.com

http://www.TraderInterviews.com



MONTH

Legend

CPI: Consumer price index

ECI: Employment cost index

FDD (first delivery day):The first day on which deliv-ery of a commodity in fulfill-ment of a futures contractcan take place.

FND (first notice day): Alsoknown as first intent day, thisis the first day a clearing-house can give notice to abuyer of a futures contractthat it intends to deliver acommodity in fulfillment of afutures contract. The clear-inghouse also informs theseller.

FOMC: Federal OpenMarket Committee

GDP: Gross domestic product

ISM: Institute for supplymanagement

LTD (last trading day): Thefirst day a contract maytrade or be closed out beforethe delivery of the underlyingasset may occur.

PPI: Producer price index

Quadruple witching Friday:A day where equity options,equity futures, index options,and index futures all expire.

June

1 FDD: June crude oil, natural gas, gold, silver, copper, aluminum, platinum, and palladium futures (NYMEX); June T-bond futures (CME)U.S.: Crop progress report

2 FND: June heating oil, RBOB gasoline, and propane futures (NYMEX)U.S.: Weekly weather report

3 U.S.: Petroleum status report

4 FDD: June propane futures (NYMEX)U.S.: Natural gas storage report

5 LTD: June live cattle options (CME); July cocoa options (ICE); June U.S. dollar index options (ICE); June forex options

6 FDD: June heating oil and RBOB gasoline futures (NYMEX)

7

8 FND: June live cattle futures (CME)U.S.: Crop progress report

9 U.S.: Weekly weather report

10 U.S.: World agricultural production and petroleum status report

11 FDD: June live cattle futures (CME) U.S.: Natural gas storage report

12 LTD: July coffee and cotton options (CME)

13

14

15 LTD: June U.S. dollar index futures (ICE); July sugar options (ICE); June forex futuresU.S.: Crop progress report

16 FND: June U.S. dollar index futures (ICE)U.S.: Weekly weather report

17 FND: July cocoa futures (ICE)FDD: June U.S. dollar index futures(ICE); June forex futuresLTD: July crude oil and platinum options (NYMEX)U.S.: Petroleum status report

18 U.S.: Natural gas storage report

19 LTD: June T-bond futures (CME); July orange juice options (ICE); June single stock futures (OC); June index futuresU.S.: Cattle on feed

20

21

22 FND: July coffee futures (ICE)LTD: July crude oil futures (CME)U.S.: Crop progress report

23 U.S.: Weekly weather report

24 FND: July crude oil futures (NYMEX); July cotton futures (ICE)U.S.: Petroleum status report

25 LTD: July natural gas, heating oil, RBOB gasoline, gold, silver, copper, and aluminum options (NYMEX)U.S.: Natural gas storage report

26 LTD: June gold, silver, copper, aluminum, platinum, and palladium futures (NYMEX); July corn, wheat, soybeans, soybean products, oats, and rough rice options (CME)

27

28

29 FND: July natural gas futures (NYMEX);June index and equity optionsU.S.: Crop progress report and agricultural prices

30 FND: July gold, silver, copper, aluminum, platinum, and palladium futures (NYMEX); July corn, wheat, soybeans, soybean products, oats, and rough rice futures (CME)LTD: June live cattle futures (CME); July sugar futures (ICE); July lumber options (CME)U.S.: Weekly weather report

July

1 FND: July sugar and orange juice futures (ICE)FDD: July crude oil, natural gas, gold, silver, copper, aluminum, platinum, and palladium futures (NYMEX); July corn, wheat, soybeans, soybean products, oats, and rough rice futures (CME); July coffee, sugar, cocoa, and cotton futures (ICE)U.S.: Petroleum status report

2 FND: July heating oil, RBOB gasoline, and propane futures (NYMEX)LTD: July pork bellies options (CME); Aug. cocoa and U.S. dollar index options (ICE)U.S.: Natural gas storage report

JUNE/JULYFUTURES & OPTIONS CALENDAR

The information on this page issubject to change. Futures &Options Trader is not responsiblefor the accuracy of calendar datesbeyond press time.

JUNE 2009

31 1 2 3 4 5 6

7 8 9 10 11 12 13

14 15 16 17 18 19 20

21 22 23 24 25 26 27

28 29 30 1 2 3 4

JULY 2009

28 29 30 1 2 3 4

5 6 7 8 9 10 11

12 13 14 15 16 17 18

19 20 21 22 23 24 25

26 27 28 29 30 31 1


Legend: IRR — initial reward/risk ratio (initial target amount/initial stop amount); LOP — largest open profit (maximum available profitduring lifetime of trade); LOL — largest open loss (maximum potential loss during life of trade).

TRADE

Date: Thursday, May 7, 2009.

Entry: Short the June Mini Dow futures(YMM09) at 8423.

Reasons for trade/setup (long trade):The new high and sharp intraday sell-off inthe Dow on May 7 (the Nasdaq 100 hadpeaked the day before and dropped sharplyon May 7) hinted at a chink in the recentuptrend’s armor and implied the potentialfor a correction.

Because the June Mini Dow futures hadtumbled from an 8570 high to a low of 8315(nearly 3 percent) in the regular trading ses-sion, we waited for a bounce to enter short.The after-hours upthrust that took thefutures as high as 8441 by 5:30 p.m. provided the opportuni-ty, and we went short at 8423.

Initial stop: 8479.

Initial target: 8306, a little above the May 6 low.

RESULT

Exit: 8543.

Profit/loss: -120 (1.42 percent).

Outcome: This trade couldn’t have been handled worse.We blew off the initial stop, which should have been closer,anyway, given we entered on a 100-point bounce and thetrade was predicated on immediate follow-through.

However, when price rallied to the initial stop, we ration-alized that a move to challenge the previous day’s high of8570 had to be expected. Problem: We didn’t want to sitthrough that much adverse price action. After rallying above8500, the market shot lower — seemingly in answer to ourprayers — all the way to 8413.

Of course, this led us to believe we had weathered the shake-out and the original forecast was intact. No sooner had thisthought settled in when the market turned abruptly higherand continued to push toward the previous day’s high. Nowconvinced the May 7 sell-off was a feint to flush out weaklongs, we exited at 8543 … and compounded the problem inthe worst way by going long — and doubling position size— at 8542. Luckily, we exited this trade relatively quickly (at8520), but not before it added psychological insult to finan-cial injury.

The next trading day (Monday, May 11), the market fellbelow 8400, and as low as 8231 by May 13. The damage ofthis trade was partially offset by a successful short positionon May 11 in the E-Mini Nasdaq 100 futures (see the TradeDiary in the August issue of Active Trader magazine), but thiswas yet another reminder of how emotions — and the needto be correct — can get the best of you if you’re not careful.�

Note: Initial targets for trades are typically based on things such as thehistorical performance of a price pattern or trading system signal.However, individual trades are a function of immediate market behavior;initial price targets are flexible and are most often used as points at whicha portion of the trade is liquidated to reduce the position’s open risk. As aresult, the initial (pre-trade) reward-risk ratios are conjectural by nature.

A prudent, favorable entry is

destroyed by the need to be right.

P/L

Date Contract Entry Initial stop Initial target IRR Exit Date Point % LOP LOL Length

5/7/09 YMM09 8423 8479 8306 2.09 8543 5/8/09 -120 -1.42% 10 -130 1 day

TRADE SUMMARY

FUTURES TRADE JOURNAL

Source: TradeStation

TRADE

Date: Wednesday, May 20.

Market: Options on Procter andGamble (PG).

Entry: Buy 2 June 52.5 calls for$2.15 each.

Reasons for trade/setup:Dow component Proctor andGamble (PG) was upgraded by Barclays Capital before theMay 20 open, a short-term bullish signal. Stocks in the DowJones Industrial Average (DJIA) open much higher and con-tinue to rally after analyst upgrades, according to historicalresearch (see “Playing the ratings game,” Active Trader,September 2007).

These stocks are more likely to gain ground if the broad-er market is climbing, and June E-Mini S&P 500 futures(ESM09) gained about 1.25 percent before the U.S. stockmarket opened that day.

There are many ways to exploit a potential bullish movewith options — trading vertical or diagonal spreads oreven selling puts. But purchasing in-the-money (ITM) callsis the easiest approach. PG opened at $53.74 on May 20,trading 1.5 percent above the previous days’s close. At first,we tried to buy June 50-strike calls, but their volume wasonly eight contracts — too illiquid to buy at a reasonableprice (i.e., between the bid and ask prices).

Instead, we bought June 52.5 calls for $2.15 each when

Procter and Gamble traded at $53.90 at 9:40 a.m. Figure 1shows the calls’ possible gains and losses that day. Thetrade has a total delta of 144, meaning it will initially resem-ble a long position of 144 shares. The goal is to hold the callsuntil the close, but we plan to exit early if PG drops 3 per-cent to the previous day’s low of $52.27.

Initial stop: Sell calls if PG falls 3 percent to yesterday’slow ($52.27).

Initial target: Exit at the close.


OPTIONS TRADE JOURNAL

TRADE STATISTICS

May 20 9:40 a.m. 10:10 a.m.

Delta: 144.1 149.8

Gamma: 27.06 20.13

Theta: -3.50 -3.81

Vega: 11.20 10.83

Probability of profit: 42% 45%

Breakeven point: 54.65 54.65

TRADE SUMMARY

Entry date: May 20, 2009

Underlying security: Procter and Gamble (PG)

Position: 2 long June 52.5 calls

Initial capital required: $430

Initial stop: Exit if PG drops below yesterday’s low.

Initial target: Hold until today’s close.

Initial daily time decay: $3.50

Trade length (in days): 1 day

P/L: $60 (14%)

LOP: $60

LOL: $0

LOP — largest open profit (maximum available profit during life of trade).

LOL — largest open loss (maximum potential loss during life of trade).

This long-call trade in Procter and Gamble had a delta of 144, meaning it resembled144 PG shares.

FIGURE 1 — RISK PROFILE — LONG CALLS

Source: OptionVue

A long-call trade makes money

when Procter and Gamble

peaks in late May.

OPTIONS TRADE JOURNAL

RESULT

Outcome: Figure 2 shows we entered at the righttime. After pausing briefly, Procter and Gamblejumped about 1 percent within 25 minutes, and wesold the calls for $2.45 each, ditching the originalplan. PG rallied another 0.7 percent that afternoon,so we probably exited too soon. However, Procterand Gamble slid and closed slightly above our entryprice. If we waited until the stock market closed,any open profits would have vanished.

Note: the historical research, which ranged fromJune 1997 to June 2007, is outdated. Have Dowstocks really continued to rally after analystupgrades as the financial crisis unfolded over thepast two years?�

After we bought June ITM calls, PG climbed 1 percent within 25minutes on May 20. We sold the calls at a profit of $0.30 per contract (14 percent).

FIGURE 2 — QUICK PROFITS

Source: eSignal


EVENTS

Event: International Derivatives Expo

Date: June 9-10

Location: The Brewery, Chiswell Street, London

For more information: http://www.idw.org.uk

Event: The Forex and Options Trading Expo

Date: Aug. 2-4

Location: Caesars Palace, Las Vegas

For more information: Go to

http://www.moneyshow.com and click on Events

Event: International Investors’ Trade Fair

Date: Sept. 4-6

Location: Düsseldorf, Germany

For more information: http://www.mdna.com

Event: Melbourne Trading & Investing Expo

Date: Oct. 2-3

Location: Melbourne Convention & Exhibition Centre

Event: Sydney Trading & Investing Expo

Date: Oct. 30-31

Location: Sydney Convention & Exhibition Centre

For more information on both expos: Go to

http://tradingandinvestingexpo.com.au

Event: Lawrence G. McMillan’s

Intensive Options Seminar

Date: Nov. 7

Location: New York City, Marriott Marquis

For more information: Go to

http://www.optionstrategist.com and click on “Seminars”

Event: The Fifth Middle East Forex Trading Expo and

Conference 2009

Date: Nov. 17-18

Location: Jumeirah Emirates Towers Hotel, Dubai

For more information: http://www.meforexexpo.com

Event: International Traders Expo

Date: Nov. 18-21

Location: Mandalay Bay Resort & Casino, Las Vegas

For more information: http://www.tradersexpo.com

http://www.idw.org.uk

http://www.moneyshow.com

http://www.mdna.com

http://tradingandinvestingexpo.com.au

http://www.optionstrategist.com

http://www.meforexexpo.com

http://www.tradersexpo.com

THIS MONTH’S ADVERTISERSTHIS MONTH’S ADVERTISERS

Click on these boxes

to link directly

to these advertisers’

web sites

http://www.wintick.com/home/index/s/ActiveTraders/

http://www.ninjatrader.com/ActiveTrader.htm

http://www.etrade.com/futures

http://www.traderplanet.com

http://www.FXandOptionsExpo.com


http://www.rsofhouston.com


fot200906

Documents