Matt McKinney's Options & Futures Trading Strategies Blog

Direct: 312-277-0115  |  mmckinney@zaner.com

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Futures, options and forex trading is speculative in nature and involves substantial risk of loss.  These recommendations are a solicitation for entering into derivatives transactions.  All known news and events have already been factored into the price of the underlying derivatives discussed.  From time to time persons affiliated with Zaner, or its associated companies, may have positions in recommended and other derivatives.


Options Play: Brexit Slams The Dow Jones

Posted on 6/26/2016 9:50:07 AM by: Matt McKinney, Market Strategist @ Zaner. 312-277-0115.

Direct-312-277-0115, Cell-312-752-7482, www.mmckinneyfutures.com

 

TRADING FUTURES AND OPTIONS INVOILVES SUBSTANTIAL RISK OF LOSS ANDIS NOT SUITABLE FOR EVERYONE.

 

 

Options Play: Brexit Slams The Dow Jones

 

Brexit Slams The Dow Jones And Is The Catapult For What Im Calling "The Summer Of Selling 2016".

 

Fundamentally, Brexit slammed the Dow Jones more than 600 points on Friday. Not even the smartest hedge fund managers and the English book makers could have predicted this outcome and the fall out for the E-mini DJ. The fall out is not over in my view. In fact, this is just the catapult for a long summer of selling in the U.S. Dow Jones and the rest of the Equity Indeces.

The bookies in the U.K. predicted only a one in four chance that "leave" would win out. They made money Im sure as common folk betters bet "remain" would take the vote,a good bet particularly when it takes a ton for any type of change. But the English have spoken.

The underdog "leave" vote came in with a 51.9% share of the vote or a total of17,410,742 votes while the favorite "remain" vote share was 48.1% or a total of 16,141,241 votes, sending the Dow Jones down more than500 points starting with investors bailing now and asking questions later at about 12 midnight Chicago time the evening of the balloting. On Friday the DJ closed down more than 600 points.

The questions surrounding Brexit are vast,more vast than pre vote. Will Boris Johnson, former mayor of London, and supporter of the"leave" campaign be the next Prime Minister of England?Will the British Pound recover from the biggest slide in 30 years? Will there be a "snowball" effect causing other nations like France to Frexit? What does this mean for fiat currencies through out the world? Will the petition that already has more 1.4 million signatures pushing for a re vote, actually cause one? And how low will Equity Index futures like the E-mini Dow Jones go?

The ramifications and reasons for Brexit are far and wide. An underlying reason for Brexit is border control. The English want their borders back, like many nations in the world. The pressure exerted by other EU nations on Britain to open their borders to, the Syrian refugees, which is the latest group to flee their nation was the final straw. Brexit is Independence Day for Britain. Congrats to the people of the U.K., for the have spoken.

Going forward a few items to mark on your calendar that will impact the Dow Jones futures are the June jobs number,the FED and their data dependant nonsense,consumer confidence, new home sales, existing home sales, and GDP to name a few. All economic data will be amplified this summer.

In the end the uncertainty surrounding post Brexit is the story and the questions again are many. Will Brexit cause market shocks like Black Monday or 9/11? How much will the turmoil in England affect the rest of the world? Is Scottish independence around the corner? And so on.

There are great ways to make money when markets go lower and that is with put options that provide a limited risk for an investor. Its been my experience that when studying charts markets come down faster than they go up. They tend to take the escalator or the staircase up and the elevator straight down. Or better yet, they jump out the 50th story window and go splat on the sidewalk below.

 

Contract Specifications: YM

  • Symbol - YM
  • Name - Dow Jones Industrial Average mini-sized (YM)
  • Exchange - CBOTM
  • Trading Months - HMUZ
  • Trading Unit - $5 times Index
  • Tick Size - 1 point ($5.00 per contract)
  • Daily Limit - 7.0%, 13.0% and 20.0% decline below the Settlement Price of the preceding session (limited to 5.0% outside of RTH)
  • Trading Hours - 5:00p.m. - 4:00p.m. (Sun-Fri) CST
  • Last Trading Day - Thursday before the third Friday
  • Value of one futures unit - $5
  • Value of one options unit - $5

 

From a technical standpoint I am bearish as well, I have added my favorite technical indicators to the charts below. I have coined them the "10/20/50/BB Trend Finder". They are the 10 (red line), 20 (green line), and the 50 (blue line) day Simple Moving Averages or SMAs. I have also added Bollinger Bands or BBs (light blue shaded area) and Candlesticks (the red and green bars with the candlestick wicks, and on a daily chart each bar represents one day of trading).

These few technical indicators can tell me many, many different characteristics about the market at a quick glance so I have them saved on my charts in MARKETHEAD, so they can populate on any chart I choose at the click of a mouse.

 

 

On the daily YM chart above the market had its single worst day since March. Or its best day of selling on the chart as the E-mini Dow futures plunged more than 600 points. This moved pulled the market down below the BB's and into oversold territory in one day. Remember, markets can remain oversold for long periods of time.

Also on the chart above it is important to note that with this day of selling, the market has taken out all areas of downside support.

On the monthly chart above the market has rested on the support of the 10 period SMA. Once the 10 period SMA is taken out on the downside then the next area of support comes in at about 15,400.

I figured all this out by putting my "10/20/50/BB Trend Finder" on the charts above and applying these indicators to the charts at the click of a mouse which I found at: http://www.markethead.com/2.0/free_trial.asp?ap=mmckinne, which is a web application that we have developed for our clients called MARKETHEAD where I get about 70-80% of all my research from. That means I get both technical and fundamental research from this web app and I am a veteran series 3 Broker of 18 years. So if Im using it then maybe my readers should check it out. Yes?

 

 

Option Play:

One strategy that could be used here is to buy limited risk put options or bear put spreads. Another potential Equity Index Option Play could be to sell calls.

For exact details on this strategy, months, expiration dates, strike prices, and number of positions feel free to contact me at 312-277-0115 or mmckinney@zaner.com.

 

CME Options On Futures: The Basics: http://www.zaner.com/offers/?page=9&ap=mmckinne

FREE QUOTE- "More Of The Same Will Just Produce More Of The Same: Less Competitiveness, Less Growth, Fewer Jobs."

-David Cameron, British PM.

 

FUTURES, OPTIONS AND FOREX TRADING IS SPECULATIVE IN NATURE AND INVOLVES SUBSTANTIAL RISK OF LOSS. THESE RECOMMENDATIONS ARE A SOLICITATION FOR ENTERING INTO DERIVATIVES TRANSACTIONS. ALL KNOWN NEWS AND EVENTS HAVE ALREADY BEEN FACTORED INTO THE PRICE OF THE UNDERLYING DERIVATIVES DISCUSSED. FROM TIME TO TIME PERSONS AFFILIATED WITH ZANER, OR ITS ASSOCIATED COMPANIES, MAY HAVE POSITIONS IN RECOMMENDED AND OTHER DERIVATIVES.

FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERDLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STICKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT OPTIONS PRICES MAY ONLY MOVE A LITTLE.

THE LIMITED RISK CHARACTERISTIC OF OPTIONS REFERS TO LONG OPTIONS ONLY AND REFERS TO THE AMOUNT OF THE LOSS, WHICH IS DEFINED AS THE PREMIUM PAID ON THE OPTION(S) PLUS FEES.


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