October 2012 / March 2013 SUGAR spread By: Brian Cullen
I look to get back involved in a spread that we were involved with back in June with a positive outcome. The formation once again looks like a great spot to re-establish the trade.
The fundamentals remain mixed as supplies and production appear to be on pace for the year, which has lead to the 400 point sell-off since the end of July. However, open interest continues rise and has reached the highest levels since our involvement in late June. This perhaps is suggesting we have quite a bit of short positions that have been added as we reach oversold territory. Should these traders begin to head to the sidelines, this should provide the support needed in this October contract for this spread to narrow before October comes off the board.
This spread has 1 month to make its move as we will have to be out of the October contract by September 26th.
- BUYING the October 2012 contract
- SELLING the March 2013 contract
***For this idea, I will be trading 2 spreads***
Premium of -70 to the SELL side (GTC)
- Risk would be the -100 level (STOP ON CLOSE) … ($336.00 per spread)
- OBJ would be the -10 level (LIMIT ORDER) … $672.00 per spread
Initial margin is $495.00 per spread
Have a look:
STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A LIMIT MOVE, IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
THE RISK OF LOSS IN TRADING COMMODITY FUTURES AND OPTIONS CONTRACTS CAN BE SUBSTANTIAL. THERE IS A HIGH DEGREE OF LEVERAGE IN FUTURES TRADING BECAUSE OF SMALL MARGIN REQUIREMENTS. THIS LEVERAGE CAN WORK AGAINST YOU AS WELL AS FOR YOU AND CAN LEAD TO LARGE LOSSES AS WELL AS LARGE GAINS.
STRATEGIES USING COMBINATIONS OF POSITIONS, SUCH AS SPREAD AND STRADDLE POSITIONS MAY BE AS RISKY AS TAKING A SIMPLE LONG OR SHORT POSITION.
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