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Trader's Tip
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I’d trade all my tomorrow’s for a single yesterday.
- Drew Klein
(channeling Janice Joplin) |
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Special Message from Our Author
Today's Featured Article
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I am a big believer in diversification when it comes to managing my clients' money. By spreading risk into several markets using diverse strategies and multiple durations, I believe we can increase our probability of long-term success and reduce our portfolio's overall volatility.
The combination of strategies I am about to present to you are only appropriate for moderately sized accounts ($25,000 and higher). I prefer never to risk more than 4% of a clients' capital on any individual trade - sometimes less, but never more. Occasionally, the markets ruin this plan, but the key is to keep losses small and live to fight and trade again. Always have enough money to come back the next day; if there is one thing I can assure you, it's that the markets will still be there tomorrow.
Below you will find a sampling of three of the different kinds of trades we look to do with our clients. The considerations below are excerpted from our market letter from 10/12/2007, “The Greenrush Capital Report”.
(From: The Greenrush Capital Report -- Friday, October 12th, 2007)
This Weeks Ideas:
- Option Trade: December Gold (GCZ7)
- Futures Trade: December Cocoa (CCZ7)
- Futures Spread: December Corn over December Wheat (CZ7 / WZ7)
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DECEMBER GOLD (GCZ7)
TRADE TO CONSIDER -
Option Trade: Buy a GCZ7 760 call option at 15.00 or better ($1,500 / option).
Expiration Date: 11/27/2007 (46 days)
Desired Risk: Exit the trade if the option closes below 9.00, risking $600 / option. Maximum risk is $1,500 / option.
Target: Exit half the position on a move in the futures to 772. Hold other half of the options or write 810 calls against remaining position.
Why:
A push and close through $750/oz gold this week has caught our attention, and once again, we are looking to buy the shiny yellow metal. Though the US Dollar was flat for the week, December gold had its 2nd highest weekly close ever and appears poised to retest May 2006 highs. At the same time Comex gold futures traded on Nymex reached record open interest levels for the fifth consecutive day on Thursday.
Futures Alternative: Buy on an open above 750. Risk a close below 738.70. Targets are 772 and 807.70.
If you cannot view the December Gold chart, go here.
DECEMBER COCOA (CCX7)
TRADE TO CONSIDER -
Futures Trade: Buy CCZ7 at 1867 stop; Sell CLX7 at 1817 stop. Leave both orders in and use the order that doesn’t get hit initially as your stop. Be sure to trace your stop and use the profit targets.
Margin (subject to change): $1,260 / contract
Desired Risk: Risk an adverse move of 50 pts ($500 / contract).
Target: Upside targets = 18.97, 1916, 19.46 ($790 / contract); Downside targets = 1787, 1768, 1738 ($790 / contract)
Why: Technical pattern. Range breakout play.
Option Alternative: N/A
If you cannot view the DECEMBER COCOA, go here. |
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DECEMBER CORN OVER DECEMBER WHEAT (CZ7 / WZ7)
TRADE TO CONSIDER -
Futures Spread: Buy CZ7 and sell WZ7, in a spread, on a daily close above 500 premium to the sell, or better.
Margin (subject to change): $700 / spread.
Desired Risk: Exit the trade on a daily close below 540 premium to the sell, risking 40 cents ($2,000 / spread.
Targets: Target 1 = -469’6; Target 2 = -448’6; Target 3 = -414’4 ($4,425 / spread)
Why:
Corn maintained some semblance of weekly strength, while wheat sold off, prompting us to reconsider this mother of all spreads. I call it the mother-of-all-spreads because it is so far from its historic norm that when it retraces, I think it will do so with amazing ferocity. Relative protein values should, one would think, return back to their statistical norm eventually. Could this be the beginning of the retracement? Our technical analysis does suggest that we will see some upside pressure on this spread should we move above 503.
If you cannot view the DECEMBER CORN over DECEMBER WHEAT chart, go here.
Conclusion
I am amazed at the haste with which people sometimes trade these markets. They get drawn in by the prospect of huge rewards and almost always have complete and total disregard for the risk. In my career, I've been humbled by the markets and I have humbled them as well. A winning trade is a great thing, but rarely do trading victories get you into big trouble -- it's always the losses that mess everything up.
Reminding me to remain modest at all times, whether I win or lose, is a quote from one of my mentors, which I have posted on my wall above my trading monitors:
"To my observation,
the successful trader over time tends to be a professional coward."
- Stuart A. Johnston, author of Trading Options to Win
Best trades to you, and as always, trade humble...
Risk Disclosure and Disclaimer:
The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose the full balance of your account. It is also possible to lose more than your initial deposit when trading futures and/or granting/writing options. As a result, selling/writing "naked" options exposes the seller/writer to the possibility of margin calls and virtually unlimited risk. All funds committed should be purely risk capital. Past performance is no assurance of future trading results. Seasonal tendencies are a composite of some
of the most consistent commodity futures seasonals that have occurred in the past. There are usually underlying, fundamental circumstances that occur annually that may cause the futures markets to react in a similar directional manner during a certain calendar year. Even if a seasonal tendency occurs in the future, it may not result in a profitable transaction as fees and the timing of the entry and liquidation may impact on the results. No representation is being made that any account has in the past, or will in the future, achieve profits using these recommendations. No representation is being made that price patterns will recur in the future. The contents of this e-mail communication
and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to sell or a solicitation to buy any futures contract, option, security, or derivative including foreign exchange. |
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About the Author
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Drew Klein is a Commodity Trading Advisor and Principal of Greenrush Capital Management LLC, an introducing brokerage outside of Los Angeles, California. Drew has been a member of the National Futures Association in good standing since 2001 and has worked for some of the largest options firms on the West Coast.
Greenrush specializes in managed accounts and full-service retail brokerage for the more sophisticated client. Drew gives his clients the option of working with him either on a commission basis or an incentive basis.
Drew is a member of the Sigma Chi Fraternity, an organization whose trader hall-of-fame includes the legendary Larry Williams and Ed Seykota.
Come watch Drew speak: "The 3 G’s of Commodities: Gold, Gas and Grains. How to Protect Your Portfolio from the Next Volatility Spike" at the Wealth Expo in New York City, October 19-21 2007. |
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Special Message from Our Author
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