Thursday, 26 January 2012

Longer Term Trading

There's been a few questions during the last week or so about longer term trading. As I said before, I use options to trade a longer term time frame. I use both debit and credit strategies, depending upon what I want to do.

The pic below shows the $RUT (Russell 200 index - cash market index not tradeable) that I trade options against.

The market is right at the 127Fib point and can either break out or turn back down. My best guess is the down but that's what it is - a guess. I can do a lot of things here but I favour a Put Butterfly: BUY 1 840 Put, SELL 2 780 Puts and BUY 1 730 Put - All march. This is a fairly aggressive position and looks like this:

If I put the position on - it's morning here in France and the options market won't open for another 7 hours or so - it will be be a position that I have to manage and adjust. It's not a set and forget trade. I can make money by time decay as well as by a drop in volatility. The position also is biased for the downside and I can make money like that too. So I have 2 out of 3 possibilities of making money: The market doesn't move or the market moves down. I can take a decent move up before I adjust so the trade is a good probability trade for me once I decide to put it on.

To be continued......

1 comment:

  1. I like your fly trade. It's nice to have a cushion behind you if the markets falter.