On the general economy: There’s is historically, an argument that the stock market is a barometer for the health of the economy. With trade talks continuing and a government shutdown to be resolved, the relative strength of the stock market still persists – even if at a slower rate. Like everyone else, I have observed that even with a media barrage that hints at less than a rosy outlook for the global economy – market resilience still rules the day for now.
This posture of mixed signals reminds me of a story about the first steamboat to ever make its way upstream under its own power. Over 150 years ago, Robert Fulton had invited the media – all print-media then of course – to the Mississippi River’s shore to witness this historical event. A great many showed up to cover the event, but none of them were the slightest bit optimistic. The media talked among themselves and said things like: … He will never be able to have this work. It will be a total failure, I’ve heard the test run results have failed many times. The methods of Fulton are dangerous and unproven, this will never work…..”
But what happened was that with great noise and puffs of steam, a confounding amount of noise and mechanical hesitation, and a few delays and adjustments later – the first steam powered riverboat suddenly rushed the power to move upstream against the might river’s current. A technological achievement of historical proportions was launched.
Did the media cheer? Were people thrilled? Did they realize the importance of what they had witnessed? No, no, and no. Instead the band of onlookers yelled out: “….it’s going to break down again, he will never be able to stop it now that he has it going. The idea is entirely useless and a waste of time and money. People will be killed.”
Of course I cannot know the outcome of the current economic situations but I do NOT think human nature and the media have changed so much – in the last 150 years. I’m glad I’m just selling options with strikes where prices are not likely to go.
My Current Positions as of 21 JAN 2019:
Short the APR19 Crude Oil 70-strike CALL at 0.18 ($180)
Short the APR19 Crude Oil 35-strike PUT at 0.06 ($60)
Short the JUN19 Crude Oil 70-strike CALL at 0.420 ($420)
Short the JUN19 Crude Oil 30-strike PUT at 0-.08 ($80)
Short the APR19 Gold 1600-strike CALL at 0.60 ($60)
Short the MAY19 Corn 360-strike PUT at 3.375 ($168.25)
Note: I always use examples with a quantity of 1 (one) option per trade. This is not because I only trade one of each option, it is to keep the illustrations simple and easy to understand in the newsletter.
When To Take Profits on Your Trades
If you have at least a few months of “selling commodity options” experience, you have probably noticed that when a trader holds a position, often this will happen: The trade has a profit one day, then a few days later it has drifted into a negative position. Each time this happens, we often think, “I should have taken that profit when I had the chance.” Then as soon as that same trade goes back to showing unrealized gains again, we find ourselves thinking, “I could take that profit now. I had a chance before and I didn’t, so this time maybe I should. Then, we might think, “…but this time, I could make even more than a small profit, so I think I leave it alone and see what happens.”
This is often the see-saw emotional / mental game that traders (all types of traders) go though. It’s a form of second-guessing ourselves with the genius of hindsight. I have a very good friend, a retired fellow, who phones me around noon two or three times a week. He trades the S&P 500 E-mini contracts almost every morning. He says the same thing to me (more or less) every time he calls”…. Don, I was short this morning and was up $500 in ten minutes. My charts (he calls them his ‘system’) were right but then I held the position too long and lost $250. I should have exited when I had the chance.”
I keep telling my friend, that he only thinks his “system” was correct. I remind him even a broken clock is right twice a day. My friend has an unwavering belief that his “system” is flawless, and that it is HE who makes the mistakes. When I remind him he phoned me only two days ago and told me basically the same thing, he gets annoyed with me. I remind him that if he really had a system that worked, he would already be using it to make consistent money again and again. He insists that his system works, and reminds me he has been perfecting it over the years. We’ve been friends a long time and we know how to push each other’s buttons, but we are able to laugh about it and remain friends.
The truth is that he enjoys his morning gambling with the E-mini’s and he is a very rich old multi-millionaire who can afford to lose a few hundred dollars several times a week – without even blinking. I tell him that his “E-mini habit is much easier than having to drive to a casino to gamble – and since he can afford it, he should trade as long as it brings him pleasure.” Every time he insist his system works, I challenge him to phone me and I will trade along with him any day- so long as he guarantees me that he will cover my losses. I even tell him, I’ll give him 50% of my winnings. Of course, he never takes me up on that.
The point is that we all play games with ourselves of one kind or another. Second guessing and selective memory are two of the tools we use to trick ourselves. We traders are always finding things “we should have done,” and yet we know deep down inside that we are only favoring illusion over fact, when we indulge in this fantasy that, if only for a little while, we had gains without taking risks.
This type of trading is risky and not suitable for many investors. These illustrations are for educational purposes only.
Crude Oil: My views and comments on crude (and Gold) have not changes in the last week. Some analyst hold the opinion that oil could hit 55 before resistance is found. It seems a trading range of $48 to $58 should hold for a while.
Thank you and have a great week. – Don
Don A. Singletary
The commentary and examples are for teaching purposes only and are not intended to be a trading or trade advisory service. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein on the web site and/or newsletter, are committed at your own risk, financial or otherwise. Trading with leverage could lead to greater loss than your initial deposit. Trade at your own risk. Investors and traders are responsible for their own investment/trading decisions including entries, exits, position, sizing and use of stops or lack thereof. This is not a trade advisory service and is for educational purposes only. The content on the pages here is believed to be reliable - but we cannot guarantee it.
Don A. Singletary is a teacher and writer. For 25 years he was a commodity risk management (hedge) consultant for major corporations. He is the author of Option Income Training Bulletin, the only such publication dedicated to teaching small/medium personal investors how to sell commodity options for a second income, a strategy traditionally used mostly by professional investors, the wealthy, and money managers.
While this website is for subscribers only, you can get full access with a free trial subscription. Also you may visit his blog with many trade examples and articles on this valuable strategy at: SellingCommodityOptions.com
22 JAN 2019: Trade Commentary
On the general economy: There’s is historically, an argument that the stock market is a barometer for the health of the economy. With trade talks continuing and a government shutdown to be resolved, the relative strength of the stock market still persists – even if at a slower rate. Like everyone else, I have observed that even with a media barrage that hints at less than a rosy outlook for the global economy – market resilience still rules the day for now.
This posture of mixed signals reminds me of a story about the first steamboat to ever make its way upstream under its own power. Over 150 years ago, Robert Fulton had invited the media – all print-media then of course – to the Mississippi River’s shore to witness this historical event. A great many showed up to cover the event, but none of them were the slightest bit optimistic. The media talked among themselves and said things like: … He will never be able to have this work. It will be a total failure, I’ve heard the test run results have failed many times. The methods of Fulton are dangerous and unproven, this will never work…..”
But what happened was that with great noise and puffs of steam, a confounding amount of noise and mechanical hesitation, and a few delays and adjustments later – the first steam powered riverboat suddenly rushed the power to move upstream against the might river’s current. A technological achievement of historical proportions was launched.
Of course I cannot know the outcome of the current economic situations but I do NOT think human nature and the media have changed so much – in the last 150 years. I’m glad I’m just selling options with strikes where prices are not likely to go.
My Current Positions as of 21 JAN 2019:
Short the APR19 Crude Oil 70-strike CALL at 0.18 ($180)
Short the APR19 Crude Oil 35-strike PUT at 0.06 ($60)
Short the JUN19 Crude Oil 70-strike CALL at 0.420 ($420)
Short the JUN19 Crude Oil 30-strike PUT at 0-.08 ($80)
Short the APR19 Gold 1600-strike CALL at 0.60 ($60)
Short the MAY19 Corn 360-strike PUT at 3.375 ($168.25)
Note: I always use examples with a quantity of 1 (one) option per trade. This is not because I only trade one of each option, it is to keep the illustrations simple and easy to understand in the newsletter.
When To Take Profits on Your Trades
If you have at least a few months of “selling commodity options” experience, you have probably noticed that when a trader holds a position, often this will happen: The trade has a profit one day, then a few days later it has drifted into a negative position. Each time this happens, we often think, “I should have taken that profit when I had the chance.” Then as soon as that same trade goes back to showing unrealized gains again, we find ourselves thinking, “I could take that profit now. I had a chance before and I didn’t, so this time maybe I should. Then, we might think, “…but this time, I could make even more than a small profit, so I think I leave it alone and see what happens.”
This is often the see-saw emotional / mental game that traders (all types of traders) go though. It’s a form of second-guessing ourselves with the genius of hindsight. I have a very good friend, a retired fellow, who phones me around noon two or three times a week. He trades the S&P 500 E-mini contracts almost every morning. He says the same thing to me (more or less) every time he calls”…. Don, I was short this morning and was up $500 in ten minutes. My charts (he calls them his ‘system’) were right but then I held the position too long and lost $250. I should have exited when I had the chance.”
I keep telling my friend, that he only thinks his “system” was correct. I remind him even a broken clock is right twice a day. My friend has an unwavering belief that his “system” is flawless, and that it is HE who makes the mistakes. When I remind him he phoned me only two days ago and told me basically the same thing, he gets annoyed with me. I remind him that if he really had a system that worked, he would already be using it to make consistent money again and again. He insists that his system works, and reminds me he has been perfecting it over the years. We’ve been friends a long time and we know how to push each other’s buttons, but we are able to laugh about it and remain friends.
The truth is that he enjoys his morning gambling with the E-mini’s and he is a very rich old multi-millionaire who can afford to lose a few hundred dollars several times a week – without even blinking. I tell him that his “E-mini habit is much easier than having to drive to a casino to gamble – and since he can afford it, he should trade as long as it brings him pleasure.” Every time he insist his system works, I challenge him to phone me and I will trade along with him any day- so long as he guarantees me that he will cover my losses. I even tell him, I’ll give him 50% of my winnings. Of course, he never takes me up on that.
The point is that we all play games with ourselves of one kind or another. Second guessing and selective memory are two of the tools we use to trick ourselves. We traders are always finding things “we should have done,” and yet we know deep down inside that we are only favoring illusion over fact, when we indulge in this fantasy that, if only for a little while, we had gains without taking risks.
I posted an article in August of 2018 that discusses this in some detail. If you care to see it, go to: https://sellingcommodityoptions.com/blog/when-to-take-profits/
Trading Decisions
This type of trading is risky and not suitable for many investors. These illustrations are for educational purposes only.
Crude Oil: My views and comments on crude (and Gold) have not changes in the last week. Some analyst hold the opinion that oil could hit 55 before resistance is found. It seems a trading range of $48 to $58 should hold for a while.
Thank you and have a great week. – Don
Don A. Singletary
The commentary and examples are for teaching purposes only and are not intended to be a trading or trade advisory service. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein on the web site and/or newsletter, are committed at your own risk, financial or otherwise. Trading with leverage could lead to greater loss than your initial deposit. Trade at your own risk. Investors and traders are responsible for their own investment/trading decisions including entries, exits, position, sizing and use of stops or lack thereof. This is not a trade advisory service and is for educational purposes only. The content on the pages here is believed to be reliable - but we cannot guarantee it.