Getting Started with Futures | Barbara Armstrong | 9-3-19
Alright. Let's. Get this thing started, with, our getting started with futures class today, is Tuesday. September. 3rd. My. Name is Barbara Armstrong, and today we are talking options. So options. On futures that's. A first for us in this class I know that Mike Flatt often. Talks about options, on futures as, does John McNichol in the two other futures, classes, they teach during, the week today, we're going right to the basics, so stay. Tuned we're about to get started. All. Righty. Let's. Get through our important. Disclosures, what we're going to do today is talk about some of the basics, on on. Trading. Options, on futures we're, going to place an example, trade perhaps, - we'll just see how it goes out there in the market and then, we're going to look at the positions, that we already have, on we, have two Twp, they're conditional, orders and we have one order on gold. I believe that is. Doing. Its thing so we'll check and just see how gold, had a big, boost of this morning, so we'll see how that one is looking. So, let's get through our important, information, and we'll get right over to the platform. Okay. This presentation, is for educational purposes. Only. Not. A recommendation, or endorsement, of any particular investment. Or investment strategy. Past, performance. Does not indicate or guarantee future success, discussions. Of returns are hypothetical and, may not include the impact of commissions, and fees returns. Will vary and know that all investing, involves risk including, the. Loss of principal, futures. And futures options trading. Is speculative. And not suitable for all investors also. Know that. You. May want to read the risk disclosure for futures and futures. Options, prior. To trading futures products. Also, know that futures, accounts, are not protected, by the Securities. Investor Protection corporation, and. That, futures. And futures option, trading services, provided, by TD, Ameritrade, are subject. To review in approval, and not all, clients will qualify so, just because you're able to trade futures in, your paper money account, which everyone, is, doesn't. Mean that when you go over to your live account that those same privileges, will be there just, want to give you a heads up on that and while, this webcast, discusses, technical, analysis, other approaches. Including fundamental, analysis, may, assert. A different view so. Know. Also that past performance of any security, or strategy, doesn't guarantee future, results or, success, and that, the paper money platform is for educational, purposes, and successful. Virtual trading, during one time period, doesn't, guarantee successful. Investing. Of actual, funds during a later time period, why because. Market, conditions, continue. To change and last, but not least in order to demonstrate the functionality of the platform, we need, to use actual, symbols, and we absolutely do. However. TD Ameritrade does not make recommendations. Nor. Can we begin to determine, the suitability of, any security, or strategy, for an individual, trader so, any investment. Decision, you make in your self-directed account, is solely. Your. Responsibility. And. You. Know know that all investing, involves risk including, the. Risk of loss so let's go over to the platform. Good. Morning to Paul and Charles thank you so much for being here and for typing into the chat it's, great to have people with us live. On, these webcasts. As they go out to each and every one of you but whether you are with us live today or, you. Are, watching. The, webcast the, archives, later, I applaud you for venturing. Into, this wonderful world of futures, I had, been with, TD.
Ameritrade, For a, couple, of years before I really, started exploring. Futures, in my, paper money account so and I, joined, TD Ameritrade, back in 2011. Initially. As a client, because I wanted to get, access to all this amazing education. And really, become. The master of my own financial, destiny, so for. Whatever reason, you're tapping in and, trying to learn. More about futures. I appreciate, you being here the, other thing that I want to mention is that if you're with me live and you have any questions, chances. Are there are going to be those listening, to the archives, later or perhaps those on the call along with you that, may very, well have the same questions, so, don't. Hesitate to ask and as long as it's in the context, of what we're talking about we'll, get. Out there and have a look at it so, I've. Typed a little agenda here, into, the, chat, and. Really, what we're looking to do here, is is, look. At some of the basic characteristics, of options, on futures place. An example, trade and then take a look at our current. Positions, so. The, best way to do that. If. We come over and, we look at, for, example gold. And. We've. Got a six-month, chart up here if we kind, of step back a bit, and we look at a 5-year. Weekly. Chart on gold you can see that, recently. Gold, has, hit a. Five-year. High so. All of a sudden you know all that glitters is gold some, might say but gold seems to be coming back into favor and it's had a big move to the upside, since. May. And and this is a five-year, weekly chart if we, come in and we look now a little more up, close and personal, and really Zone in on it we can see that it's been moving up and as we, see you, know with many other, stocks. That aren't futures in this we see a lot of the same types. Of technical patterns, so it, came up and hit a new high, consolidated. Move, to the upside again, we had a three day pullback, and today. You know it's up. 26.7. Points. And when, we look at a number like this 1556. If you haven't, done a lot with, futures. It's. Easy, to think of that as a dollar number, but remember. When we're looking at futures. We're. Looking, at. Futures. Contracts. And if we come and we look at our futures. We can see that a tick size is 0.1. And the. Value, is $10, so, if you take point 1 and if your, math, let. Me just make, this annotation. Here. If. We. Take our point 1 we've, got to multiply, that by 10. Just to get us to one point right so, we. Have to take the $10. That each tip, represents. And. Multiply. That by 10 also so one point, is worth. $100. And so. That's, something we want to understand. What. You, know our parameters. Are what it means when we place a trade, and if, we come out and we look at the monitor, tab you. Can see we have a position on gold here, we, bought one contract. At, 1550. It's currently trading at, 1556. And. So, if each of those. Points. Is. $100. I mean it started the day much lower it's up 26. Points, or twenty. Six point four points, and that. Translates. Into. When. We see that we're up 26. Points, here that, translates. Into. $2,600. Now. Overall. We're, only up. 570. Dollars on this position in total why is that because. We bought it on Tuesday, and, then it spent three days pulling, back and, so. That's, why. Our net. Open. Is not. Higher so. Big. Day on gold today but today we wanted to talk about. Options. So, if we look at this and we say, okay. We. Have. The. Same. Options. Opportunities. Available, to us. When. We're trading, futures that. We do when. We're looking at a stock or an index, or an ETF so. What, might one of those options. Strategies. Be that might be of interest to us and if we wanted to look at something, that was. More. Conservative. As an, option strategy, and perhaps, one. Depending, on where we put our strike that might be a higher probability, we. Might want to look at something. Let. Me just change my drawing tool here. Such. As. Short put vertical which, is a bullish. To, neutral, strategy and, so. With that if, we come over. Come. Here, if, we come over here and say okay. Let. Me try this one more time. You, can see where my cursor is well, let, me just bring, it over here we'll use this drawing tool. So. If we come over here and we say okay, what we're looking. To do. Is. Sell. Something, I'm gonna make that a little bigger and then, we're, going to sell a put and then buy a put, and could. We get enough of a credit to, go below, the 1,500. Now, some might say that's being pretty conservative, and we might not get enough premium, because. It's just pulled back here. And we've. Got a support, level here around, 1525. And it's bouncing, pretty dramatically, to the upside, but. If we could get enough premium, this would be below you. Know at least, two, levels of support so, if we come out to the trade tab, so. What is it important.
That We. Look. At when, we're looking at, an option. On a futures, contract and, the objective, by the way in this, half-hour is. Is. To. Give you an a, basic. Introduction, to what. It means to trade an option on a futures, contract and, what are the some of the things that you have to take into account so. When we come and we look at this and we say okay. I'm. If I'm looking. At. Sorry. If. Let. Me just move this over here. Put. It down here if I'm, looking, at this, October. Option. Right here. And. I. See. At the side here it says, GCV. 19. So. What, does that mean, to me, well. We can see that the active, contract. On this is GC. Z. 19, which is considered. To be the active contract, and so if we're looking at active, Oh, we can say let's look at everything for the next three months, this. GCV. Is the, October, contract that expires, in 26. Days, so. The. Futures. Contract, that. We'd be buying an option, contract. On is not. The. Currently, active contract. It's, this one that's expiring, in 26, days so. GCV. 19, and our, option. Contract, would expire in 22, days so four days before. The. Option, contract, expires. Does. That make sense. It's. It's another, layer, of complexity. That, we don't see, you. Know or that we don't necessarily have, to think about when, we're trading an option, on a, stock for. Example. So. Let's. Come out here and give ourselves some, more strikes, because. We talked about this. 1500. Contract. And, we. Can see here that the bid is 5.1. Points. So that would be you know 510. And then. If we come down to the 495. We can see that we've got you. Know 4.2. And 4.5. So if we right click on, this anywhere. On this line and say we would like to look at selling, a vertical. Now. I'm going to change this to one contract. So. We'd, be selling, the 1500. Buying. The 14.95. So. And the by buying the 14.95. We're, limiting, our risk so. What's the most we can lose on this trade. Well. We could lose the difference between the two strikes, which, is five points. -. What. We're getting paid to get in and, when I first looked at this this morning this was at $1. So. It was a four to one ratio now. We also have, to take the multiplier, into account and the multiplier, is over, here and our, multiplier, on this, a hundred, is, it, always a hundred well yes it's always a hundred on gold but. It isn't always a hundred on other futures. Contracts, so. If we, came out to look at confirm, and send how. Much can we make on this well. Ninety. Cents times 100, or ninety dollars, how much can we lose four. Dollars and ten cents. So. The, most we can make ninety, our max. Loss for. Ten. So. If we come back here and we say well, we'd. Be willing to risk a thousand. Dollars on a trade then, we could do two of these now, with short, put verticals, what some investors, want to see is what. Their return, is and if they're in it for twenty two days their. Rule of thumb might be I want to make at least 1% a day it. Might be I need, to make twenty percent it might be thirty percent so each. You. Know there isn't a right or wrong rule. Or guideline, but at least, some investors, have a guideline around, return on risk so. If we say okay, we, can make 80 on this. /. Or. 90. On this so, let me just clear that, 90. /. 4. 10. So. That's a 22%. Return. So. What we could do is just lock this and say you know we want to get at least 90. Percent 90. Cents, which. Would be a 22%, return, which, if our return on risk is 1%, for each day we're in the trade we'd be in this trade for a max of 22. Days, some. Investors, also when, they're doing a trade like this would. Want to come in and put. In their exit, so they'll come up here, click. Right create. An opposite, order and say hey when. This is worth about. 18, cents. Get. Me out so, they. Might want to get out when they've got 80% of their profit they might say 90% of their profit, they, might look at it in 3 days and say I've got. 65. Or 70 percent of my profit, and it, looks like gold might start, coming back down so I'm going to take my 65, or 70 percent and call it a day. So, these with, futures, in particular. And. Many or at least some investors, tend to watch so. Oh, sorry. We were going to do two contracts. I'm. Going to make that two and that two, so. Our total max. Profit, on this is 180, max. Loss, 820. We, want to buy two verticals. On gold. And this. Is the, contract, the gold contract, expiring. 926. Days, our. Date. Is October, 19th. And. That. Expires in 22, days it's a vertical, and, there. We go we're going to send that in oh. And. Look at this on this one I'm going to have to fix that I. Haven't. So so. It's not letting me in paper-money, place.
This Trade but, we've walked all the way through teeing it up. There's. A question, in the chat on, recommend. Options, over owning the stock and, that's really, beyond, the context, of this class. So. I'm not going to be able to spend much time on that the, one thing I did want to do though is come over and look, at the. Es. And. The. Reason, I want to do that and. If. We come over and we look at this we, have a hedge position, on to. Sell, a contract. If it goes below. The recent, low here, and that, low was twenty seven seventy five so. We've said if it goes one percent, below this recent, low. We. Would like to sell, and so, we put this line on the chart so that we could see. Where. We have our hedge we, also put, a hedge position, on. The. Nasdaq, at seventy. Two twenty and. We can see these but if we look at these technically. Speaking. What. Some, technicians, might, see. Here, is. This. Pattern and it depends on if you like to draw from the wicks or not we've, got a bit of a pennant, pattern, or a squeeze, pattern. Happening. And so there, are some investors. Who, might move their hedge up to, 1%. Below. Where. This line, is, and. That's something that we can talk about next. Week if we revisit, hedging, and the same thing, we. See happening, here on. Our. Es. Minis. Oh. Let. Me start that one again so. So. We have hedges. To sell set up if this breaks down below. The most recent. Low and. Neither of those positions has, kicked in yet but, if we were to look at something similar, let's. Say. That an investor. Was. Thinking. That we may be a bit range bound but that this may continue. And looked. At a short, put vertical around, 2800. If we. Come and we, look at say. We wanted to look at something about, 22. Days out. What. Contract, are we looking. At selling. Our option, on the e, es. Z, 19, and when, does that expire, it expires, in December, and. Then. If we were to look at a short put. Vertical again, just to make it consistent for. The type of trade, and we, said we wanted to look at something around, the. 2800. Mark, so. We'd have to give ourselves even more, strikes, Oh. At. The, 2800. Mark our Delta, here is 26. Which means the, odds of this expiring, worthless, are, about 74, percent currently. So this is the probability, of this expiring, out of the money we, can see it is is, around 73, percent and if. We come to cell vertical. We. See that our multiplier. Here is 50. Not. A hundred so. Even though we have a dollar credit. And a, $5. Spread, if it comes to confirm and send oh I've, got 10 contracts, here let. Me just change it. We. Can see the most we can make isn't a hundred, it's now fifty but, the most we can lose even though the spread, is still. Five dollars, is now 200. Not, 400, per contract so. If you were willing to risk a thousand, dollars on this you could do five contracts. Does. That make sense. Yeah. Keith. I believe, that trade, got rejected, because this, is an account. That. I use just for futures, and I haven't, I, I thought it would automatically, be on here so it's a special type of account that we coaches, use so, I'll just have to call the trade desk and get that get. That set it's not that, the, trade was put in incorrectly. So, if we went. Ahead and put this one in I'm sure that it will reject also we just wanted to sell a vertical on. The. Es, Z. 19, which, comes due in. December. And our. Contract. Though comes due in 22. Days and. Our. We're, doing the 2827. 95. $1. You. See it's it's just saying that they are not allowing option, trading on this account so, if you get that. You. Can call the trade desk if it happens on your paper money and they, can sort. That out for you. Okay. Okay. So our current positions, we, have we've. Actually now, reviewed, them because. We, have teed. Up on. The minis instead, of on so, these are on the micro, a minis. The. Es and, the. Nasdaq. If we, look at these orders, that. Are waiting. On a conditional, order and we look at them we can see that we only want to place the trade if it goes below a certain threshold so. That was those two and then gold. Was the other position, we had on and we, put on one. Micro. II. Contract. And then. One. Regular, contract, on gold so, we can see that on the micro, you know we're up 69, dollars basically. 1/10. Or. 67. And we're up 670. On. The. Regular. Gold contract. So. We did that just to, practice, with the micros, and understanding. The difference, in the math and in the risk and in the you. Know margin. Requirement. And and all of that so. Guys our, half-hour, it goes, by so quickly. Doesn't it and. Our half an hour has gone again. Today. But. Just. To, review. In. Order, to demonstrate the functionality of the platform, we need to use actual symbols, we, did today we. Looked at an. Option, contract on gold, we looked at one on the. Es, futures, also. On the sp500. Futures. However, that's not to be construed as a recommendation, we. Cannot begin to determine the suitability of, any security, or strategy, for an individual, trader any investment. Decision you make in your self-directed account, is solely your, responsibility, know, that all trading, involves risk including, the risk of loss so my, friends, thank you so much for, joining me today appreciate.
You Being here. There. Are two, other webcam. That. I mentioned, at the beginning that. You may want to tap into. Let. Me just pull up the times. Leveraging. Capital with futures is taught by Mike Follette on Thursdays. At. 12:30. Eastern and, at. The market opened new time starting. Next week with John McNichol. He. Teaches an advanced, futures. Class that includes options, and that's on Monday at the market open 9:30 to 10:30, so. If you can join either one of those if the option, strategy, I talked about today is, a. Little. New. To you also you may want to check out getting, started with options, and you can go back through the archives, and just look. At the class on short put verticals, so. That, would, be helpful also if, options. Trading, in general, is new, to you as well so that's. A wrap for today guys best. Of success with your trading hang. With the futures, I will look forward to seeing you next week and, have. An awesome week bye for now.