Ask a Broker
ISSUE 308 | SEPT 2004
Q: How can I take advantage of a financial number that comes out extremely bullish or bearish, such as an employment report, without the risk of having a futures position on before the report? -Concerned Customer.
A: Having a long or short futures position before an employment report or any other meaningful economic report can be extremely risky business. However, there are ways you can try to take advantage of an extremely bullish or bearish number using two of my favorite options strategies. When you are trading options, you are essentially doing one of two things: buying volatility or selling volatility. In many instances, a financial number is quite a bit higher or lower than what the consensus opinion of forecasters suggests. That typically causes the market in turn to behave violently in a bullish or bearish fashion. One way to potentially take advantage of this scenario using options would be to buy volatility before a report in a financial commodity such as the 30-year Treasury bond, 10-year Treasury note, E-mini Standard & Poor’s 500, euro currency, etc. The easiest ways to buy volatility would be to use a strangle or a sstraddle. A strangle consists of buying an out-of-the-money call and an out-of-the-money put with the same expiration, while a straddle consists of buying an at-the-money call and put with the same expiration date.
Example of a strangle: December bond futures are trading at 110-28. You would take a long position in the December bond 113 call and a long position in the December bond 109 put.
Example of a straddle: December bond futures are trading at 111-00. You would take a long position in the December bond 111 call and a long position in December bond 111 put.
Both of these strategies would allow you the potential to take advantage of volatility after a number that moved the market violently to the upside or downside. Also, both of these strategies would limit risk to the premium paid per contract, excluding fees and commissions.
To learn more about this strategy and others, contact a Lind Plus Market Strategist call 800-571-1122 or email lindplus@lind-waldock.com.
Kristina Zurla Landgraf is editor of Lind eWire. She can be reached at editor@lind-waldock.com. To submit a question for Ask A Broker, contact the editor at that address.
© 2004 Lind-Waldock, A Division of Man Financial Inc. All Rights Reserved. Futures trading involves the substantial risk of loss and is not suitable for everyone.
