Those professional traders who are successful do have certain characteristics in common. One such trader, nicknamed Big A, has pinpointed 5 charactristics:
1. It is usual for successful traders to have had a mentor, even after achieving success. That’s why it is so helpful adopting a mentor who has already succeeded in the market. If you can find an honest successful trader who will teach his system, as it is and as it made him successful, then you will succeed faster than by using trial and error in your trading.
2. Keeping yourself detached emotionally, from your trades and the markets, is essential to trading success. Once you enter a trade, are you willing to forget about it until your pre-determined exit strategy is met? BIG A admits that it’s fun to watch your trading account soar in a matter of days, but watching it too closely can be dangerous. 99% of emotion can be removed with his after market trading plan.
3. A successful trader will not try to lead the market and outwit is. Trying to force the market is financial suicide. The key is to be a follower, not a leader. Stick to your system at all times; it is a system that you should not tweak as you go along and try to make things happen. If you are click happy with your mouse, then make sure you do it on a demo account. You may get lucky sometimes and think you can always make something happen with the market; you can’t. That is the whole reason for using a system and milking the slight edge it gives you.
4. Preparation is essential for every successful trade; an unprepared trade is a gamble. Not only is it vital to have a trading plan, but you must stay with it at all times, regardless of market fluctuations. You need to know how to plan each trade quickly and easily. For example, in BIG A’s system, you only need to trade each night for 5-10 minutes after learning the system.
5. Successful traders expect to become rich. Close your eyes and see if you can imagine yourself wealthy? A successful trader is able to. Do not restrict yourself. Wealth and prosperity cannot be manifested on the outside if it does not exist within. If not you will self sabotage your trading account when it starts to get too high because of a subconscious hang up that you don’t deserve to be rich. It is important to learn how to think and overcome any hidden physiological obstacles that are hindering you from success. Your mentor can help you with that.
Big A actually has his own ETF Funds trend trading course, in which he teaches his own system of day trading for exchange-traded funds.
Please only use these future option examples for educational purposes. Paper trade them.
I normally write about spread options. Today, first I want to take a look at a futures spread. Let’s look at a natural gas/heating oil spread. This is buying one natural gas futures and selling one heating oil futures.
You can trade this as a spread using options. You do not have to just buy and sell the futures. You can buy a call and buy a put instead so you are limited in your potential loss. Even though futures spreads can have less risk, there is still the possibility of unlimited losses.
With buying options, you are limiting the risks. You no longer have unlimited loss potential. But the problem is that you are buying premium. So instead of just buying options, you can buy and sell credit spreads.
For example, from looking at the above chart, we can buy an at the money natural gas call option and sell a natural gas out of the money call. Then we sell an at the money heating oil call option and buy an out of the money heating oil option. We expect natural gas futures to rise in comparison to the heating oil futures because of the chart.
I go over these types of option spreads in my course. And I look at some market combinations that you might not have thought of. Don’t just use these for the obvious spread markets like, wheat/corn, t-bond/t-note. There are other market combinations for spreads and other ways to come up with the option spreads. You can create a spread using more than one market instead of just two markets. You can also create option combinations that are not typical credit or debit spreads. Think outside the box with commodities options.
There are many ways of trading in the futures commodity markets. One way is to trade options on futures. There are many strategies you can use in trading futures options. You can just buy an option or just sell an option. You can also put on what is called a spread using options. Spread options are when you buy and/or sell more than one option at a time in the same order.
You can buy 2 options or sell 2 options or buy one option and sell another option. The options you buy have to be in a different strike price to be considered a spread. If you just were to purchase 2 of the same options, that would not be a spread. The 2 options would have to be 2 different future option contracts. Let’s look at corn. These are not current prices, just an example. If I purchased 2 $3.00 corn options, that would not be a spread. If I purchased one $3.00 corn option and sold one $3.10 corn option, that would be a spread. I would put this trade on in one order.
Not all spreads have to be in the same contract month or even the same market. When putting on a spread in different months, you could put in an order to buy one option in one month and sell another option in another month at a certain price. These are called calendar spreads as they involve different months.
Now when putting on a spread, you will either have money coming into your account or going out. If your purchased options cost more than the sold options, you would state that you are putting it on for a debit. If you are taking in more with the sold options than you are paying with the purchased options, you are putting the spread on for a credit. I will discuss other types of options strategy using spreads in another article.
Futures contracts as they relate to finance is a simple contract devised to allow someone to ultimately purchase or sell specific commodities that will be delivered at some future time. Generally there are certain dates and time frames which must be met in order to be a valid contract.
These types of transactions are never offered on the usual stock market but you would find them on what is commonly known as the futures exchange. They are not considered to be securities in the strictest sense of the word as stocks or bonds may be. They are a type of derivative.A futures options contract or a commodity option is a derivative as well.
The actual prices associated with the various commodities vary according to the supply and demand. If the pork belly crop is not good this year the prices will likely be high while an over abundance of coco would result in a lower than normal price. The future date is known as the delivery date while the daily bid on the exchange would be the settlement price.
In a nutshell in futures trading, what a contract states is that the holder can take delivery of the commodity at some future date however the futures must be complied with by the settlement date. At the settlement date the seller will deliver the asset to the buyer whether it is coco or pork bellies or whatever. In order to fulfill your obligation prior to the established settlement date you must offset your position by selling if you purchased the futures or buying back if you had a previous short position which ultimately allows you to balance everything out.
An interesting side note here is that if you purchase a futures contract and do nothing what so ever and the settlement date arrives you could end up with a yard full of assets that you really did not want. Unlike stocks and bonds we are talking real time products here.
Over the last decade, the popularity of options has grown significantly. According to the data compiled by the Options Industry Council, the volume of options contracts traded on U.S. exchanges in 1999 was approximately 507 million. By 2007, that number grew to more than three billion, thus setting an all-time record.
Though futures options are quite risky investments that can only be understood by expert traders options can be very useful to the individual investor as well.
Futures Options can also add value to your portfolio and have several other advantages that are definitely worth noting. A few are outlined below and will help illustrate reasons why options have gained so much popularity in such a relatively short period of time.
The first advantage of options on futures is that they can provide increased cost efficiency. Since they possess great leveraging power, you the investor can obtain a great option position that nearly mimic a futures position but save you unnecessary cost.
The second advantage is that they provide less risk when used correctly. While there are situations where buying options is actually riskier than owning the futures, but they can also be used to reduce the amount of risk incurred. Futures options can be less risky because they require less financial commitment than equities. They are also the most dependable form of hedge which makes them safer than stocks.
The third advantage of futures options is they provide higher potential for returns. This means you can spend a lot less and make nearly the same profit as you would with the underlying futures. This gives you a higher percentage return.
The fourth and final advantage we discuss in this article pertains to the strategic alternatives futures options provide. Options are a very flexible tool and provide many ways to recreate other positions. These positions are known as synthetics. Synthetic positions provide you the investor multiple methods of attaining the same investment goals which can prove extremely useful.
The four points outlined above are the key advantages futures options offer and are a contributing factor to their growing popularity. If used correctly, they present less risk than straight futures and they can actually save you unnecessary costs while providing you the same profit. This is important to consider when selecting a type of investment. You want to get the most out of your money and futures options provide several ways of making this happen. Take the time to review this information before ever making a buying decision. Make sure you understand how you may benefit from the decision you make and what it will mean for you in monetary terms.
Before you decide on a particular investment, consider the key advantages and weigh the risks of each possibility against what you are willing to lose. Be sure you understand how to correctly utilize futures options in order to get the most out of them. You are investing for your future so think wisely and choose carefully. The more you know, the closer you’ll be to a more secure and prosperous future.
