Trading Plan (Wk 6/19): Managing Risk and $tacking $ell Puts

Rather than monitor for more markets to capture major moves, I want to manage my current positions to maximize profits.

Aug. Live-Cattle $LCQ11 and Sep. Feeder-Cattle $FCU11:

$LCQ11 5-Day Chart

It’s easier to see the gap from 2 days ago (6/16) on the 5-day chart. The gap is between 107.84 to 108.46, a 0.6% magnitude gap that attacked the 23 and 30 EMA (significant). I will be looking to see whether the gap is filled this week as common gaps are quickly fill. Break-away gaps are not filled, signifying the beginning of a new move. Trends can form in one day thru break-away gaps.

$LCQ11 One-Year Chart

$LCQ11 breaks the 23 and 30 EMA clean and will be testing the 50 and 180 SMA. Nice volume. I can also see the it hugging the the upper bollinger band = bullish. However, the market cannot sustain such a parabolic move (almost vertical) and $LCQ11 will very likely consolidates or correct before marching up again as also confirmed by RSI reaching overbought condition.

1) I will look to sell 2 June puts at or above Fri’s closed of 110.20 [for my 2 long $LCQ11 and sell 2 June puts for my 2 Sep Feeder Cattle]. I will get a premium for selling (writing) these put options. As the market prices reach the strike price, they will be exercise and I will give up my long Feeder and Cattle positions.

2) I will buy 3 long $LCQ11 and sell 3 June put at the same strike price [market price]. This way, I will be profitable even if $LCQ11 stays here at expiration but my upward profit is limited.

3) If $LCQ11 marchs upward 25 cents (110.50), the puts will be exercises. Thus, I will long 2 more $LCQ11 and sell 2 June put. Repeat steps 2 and 3, at 25-cent intervals, if it keeps going up. But pyramid positions, that is, starting with 4 longs and 4 sell-puts and lowering to 3 to 2 to 1. Don’t get excessively greedy!!!

4) Watch Feeder-Cattle, a leading indicator of Cattle.

Bottom line: the profit potential is greater because you’re also getting a premium on writing the puts. And you also make money if the price stay or slightly dip

July Silver (SIN11):

$SIN11 One-Year Chart

$SIN11 One-Month Chart

The bid-ask spread seems bullish. Make sure to check the pre-market. Rather than straight out buy and sell silver futures (unloading and reloading using resistances/supports and moving averages), I can make more profits by selling a put slightly below the market price. That way, I profit from the premium of the selling the put, covering my commissions.

Bottom line: at the least, you make money from the premium on writing the puts to cover commissions.

P.S. I am using stop losses for my other positions as watching these two will already be overwhelming.

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