So What Happened??? I'll tell you in a minute, but first, remember to "meet me" tonight in the Let's Talk Trading™ Chat Room, 6 pm Pacific Time at www.kenroberts.com. Now, here's a followup and update to the "It Just Happened . . ." emails I sent you recently. By the way, as you will probably notice, for some of these markets the active futures month has switched since my original message. Feeder Cattle Update Based on the Hi-Lo Breakout Strategy I purchased one October 110 Feeder Cattle call option for 200 points ($1,000) on March 30. It closed today at 290 points ($1,450). I'm still holding on to this position and watching to see if prices can hit the weekly high at 118.70. Original Message May Feeder Cattle broke and closed above its contract high on March 29. Based on the Hi-Lo Breakout Strategy, this triggered a possible entry with call options. Prices actually pulled back yesterday, which made call option premiums a little less expensive, and therefore a better buy. So, with the market slightly down yesterday I decided to go on a "shopping" spree to see what kind of deals I could find in the Feeder Cattle market. Because futures prices closed at 105.50 on March 29, I checked to see what the going price was for options that were both at-the-money (the 106 call) and slightly in-the-money (the 104 call), with at least 90 days until expiration. I chose to look for opportunities in the August contract month. Checking the option quotes on U.S. Charts Online, I found I could purchase the 106 call for $2,387.50, while the 104 call was going for $3,012.50. Because of the difference in price, I elected to focus on the less expensive August 106 call. Armed with the above information I went on to take a peek at www.tovionline.com to see how TOVI(r) rated that option, and to learn if TOVI felt that any better options were available. Once I logged onto TOVI I decided to see what kind of opportunities $2,400 could bring in the Feeder Cattle market, so I elected to do a maximum premium search of $2,400 for call options. TOVI then displayed its top rated option as the October 2005 108 call. The premium for this option was $1,150 and it had a value factor of 2.324. By comparison, the 106 call I had been considering for $2,387.50 had a value factor of only 1.936. Amazingly, TOVI's top pick, with a higher rating and more time value, was actually going for less than half the price of the 104 August call I was originally looking at! In fact, I could even buy two options for less than the $2,400 (of course, we must also add in fees and commissions)! As you can see, TOVI allows us to be creative and find the best possible value for our money. If you were paper trading this option, your first upside target would probably be the weekly high at 118.70. Be sure to have your exit strategy in place before entering the trade. For example, you might decide to exit when your option gains or loses a certain dollar amount, or when a support or resistance level is broken - or use TOVI's DTCP as a stop-loss point. Lean Hogs Update Based on the 1-2-3 Strategy I purchased one July Lean Hogs 7600 put option for 290 points ($1,160) on April 20. Today it settled at 352 points ($1,408). My first downside target for this trade is the weekly 50% level at 57 and then support at 48.40 (made November 2003). Original Message June Lean Hogs broke below the #2 point of its 1-2-3 top formation yesterday and TOVI(r) Trend Tracker(tm) (TT)* says the trend is now down. Based on the 1-2-3 Strategy, this triggered a possible entry with put options. Futures prices closed today just above yesterday's low, so there still is plenty of time to paper trade this setup. If you take a peek at "Ken's Chart Book" you'll see that I've included a chart of this market. The break of the #2 point occurred almost exactly at 77.50. This provided me with a reference point for shopping put options. I began looking for options that had at least 90 days remaining before expiration and a strike price close to the #2 point. After a little investigation I concluded that it was best to price options in the August contract (expiration: August 12, 2005). The August 76.00 put was a good place to start my shopping. August futures closed today at 74.15, so the August 76.00 put option is actually in-the-money. The premium for this option is $2,120. The premium for the 74 put is $1,740. And the premium for the 72 put is $1,380. My first downside targets for this paper trade are first, the weekly 50% target at 57, and then support at 48.40 (made November 2003). Copper Update This Hi-Lo Breakout Strategy trade separates the contrarian trader from all the rest. For example, when the Hi-Lo Strategy was triggered on April 11 it didn't follow through the next trading day and instead prices dropped. Being a contrarian this is the kind of opportunity I like and I used this setback as an opportunity to buy a call option cheaper On April 12 I purchased one September 160 Copper call for 530 points ($1,325). It closed today at 225 points ($562.50). Prices continued to drop and I used the decline as an opportunity to "average down" and I bought a second Copper option. This order was filled on April 15 and I bought one October Copper 165 call option for 240 points ($600). It closed today at 215 points ($537.50). (See April 12 Chat Archives and "Tom G's" question at 6:24pm on Averaging Down.) Now I'm hanging on to the Copper market through thick and thin because options allow me to do so with no additional risk than what I've already paid (plus fees and commissions). My target for this market is the all-time high on the Monthly chart. Original Message May Copper broke and closed above its contract high today. The previous high was established on March 8 at 152.10, and today this market closed at 152.50. Based on the Hi-Lo Breakout Strategy, this triggers a possible entry with call options. I've included a daily chart of this market below. Since prices closed at 152.50 this provides me with a reference point for shopping call options. I decided to search for options that have at least 90 days remaining before expiration, and a strike price as close to today's settle as I can afford. I then visited US Charts Online to see what the going price was for options that were both at-the-money (the 152 call) and slightly out-of-the-money (the 155 call). I even looked a bit farther out-of-the-money and checked on the 160 call. By the way, I chose to look at opportunities in the September contract month because these options don't expire until August 25 - providing well over 90 days until expiration. Checking the option quotes on U.S. Charts Online, I found I could purchase the September 152 call for $2,075, while the 155 call was going for $1,787.50 and the 160 call settled at $1,326. Because of the difference in price, I've decided I will focus on the less expensive September 160 call and will begin paper trading this option tomorrow. My first upside target for this paper trade is the all-time high on the monthly chart at 164.75 (made December 1988). If prices get above this level the next target is truly unknown (because it would be a new all-time high), so I would trail a "mental stop" below any support points that are made along the way. Now here's another lesson in this trade: I asked my broker how he's approaching this Hi-Lo Breakout Strategy opportunity in Copper and he said "I NEVER trade into a loser" (meaning that he never enters or averages down in a market moving against him). So my broker's waiting for Copper's Active Futures Month to break above and close over the contract high. When I asked my good friend and attorney --- another active trader --- how he's approaching this Copper opportunity, he was inclined and "tempted" to purchase a Copper call option when prices were down and dropping (in order to take advantage and hopefully pay less). He never followed through . . . . And as you've seen, not only did I follow through, but also ADDED a second option for less than half the price of the first, and therefore averaged down my costs in the Copper market. So here are three active traders approaching the very same market and opportunity in three distinctly different ways. Is one "right" and the others "wrong"? Well, let me quote the great Katharine Hepburn: "Never be fooled by those two imposters: "Success" and "Failure." So based on YOUR experience of the markets so far, and on your history of paper trading, what's YOUR approach to this trading opportunity in the Copper market? Orange Juice Update Based on the 1-2-3 Strategy I purchased one November Orange Juice 9500 put option for 575 points ($862.50) on April 21. Today it settled at 755 points ($1,132.50). My first downside target for this market is the 50% level on the weekly chart at approximately 78.48. If prices get below this level the next target would be the 2004 low at 54.20 on the weekly chart. Original Message May Orange Juice broke sharply below the #2 point of its 1-2-3 top formation last week. However, at that time TOVI's Trend Tracker (TT) said the trend was still up. Based on the 1-2-3 Strategy, not only do prices have to break the #2 point, but TT's trend rating has to be pointing in the same direction as the break of the #2 point before options can be purchased. Well the trend rating change just happened! This market has now given the signal, based on the 1-2-3 strategy, to purchase put options. The break of the #2 point occurred almost exactly at 95.00, which provided me with a reference point for shopping put options. I began looking for options that had at least 90 days remaining before expiration and a strike price close to the #2 point. After a little searching I found that the July options expire in 59 days, but the September options have 122 days until expiration. I also discovered that the September 95 put option last traded for 480 points ($720). Since I was in a shopping mode, I also decided to look at the November options to see if they offered any possibilities. Lo and behold I discovered that the November 95 put option last traded at 570 points ($855) but doesn't expire for 185 days! So for an additional $135 I can buy another 63 days of time! My first downside target for this market is the 50% level on the weekly chart at approximately 78.48. If prices fall below this level the next target will be the 2004 low at 54.20 (see weekly chart). Oats Update Based on the Hi-Lo Breakout Strategy I purchased one December Oats 140 put option for 8-1/2 cents ($425) on April 29. It closed today at 9-3/4 points ($487.50). My first downside target for this trade is support on the weekly chart at 120-1/2 (made in July 2004). If prices get below this level the next target is 93-1/2 (made in July 2000). Original Message May Oats (the active futures month contract) made a new contract low today at 142. Based on the Hi-Lo Breakout Strategy, this triggers a possible entry with put options. Today's closing futures price of 142 provides me with a reference point for my shopping. I decided to search for options that have at least 90 days remaining before expiration, and a strike price as close to today's settle as I can afford. I visited US Charts Online to see what was available. I found that I could purchase the September 140 put for $237.50, or I could purchase the December 140 put for $306.25, just $68.75 more. Because of the small difference in price I'm going to try to purchase the December 140 put which expires 91 days later! Some traders will try to bid less than the going premium so that they can get their option at a better price. Others will even wait to see if the futures market retraces, which in turn, should make option premiums cheaper. I, on the other hand, am willing to pay the going rate because I want to get in this market. So tomorrow I'll work with my broker to get the best possible deal. My first downside target for this trade is support on the weekly chart at 120-1/2 (made in July 2004). If prices get below this level the next target is 93-1/2 (made in July 2000 - not shown on this chart). See you at tonight's Chat! * Licensed by Market Valuation Institute NOTE: The information contained in our E-mail Updates is for educational purposes. Market conditions and commodity prices constantly change. These futures charts are presented for informational purposes only. They are intended to show how investing in options can depend on the underlying futures prices; specifically, whether or not an option is in-the-money, at-the-money, or out-of-the-money. The futures charts are not intended to imply that option prices move in tandem with futures prices. In fact, option prices may only move a fraction of the price move in the underlying futures. In some cases, the option may not move at all or even move in the opposite direction of the underlying futures contract. Trading in commodity futures or options involves substantial risk of loss. According to many experts, most individual investors who trade commodity futures or options lose money. Being a successful PAPER TRADER during one time period does not mean that you will make money when you actually invest during a later period. Past Results are not necessarily indicative of Future Results. Investment in commodity options for potential profit is accompanied by the risk of loss of the entire investment. Your trading decisions should be based on your own particular financial circumstances and trading objectives. WARNING: OPTIONS TRADING INVOLVES HIGH RISKS AND YOU CAN LOSE A LOT OF MONEY. To be removed from this mailing list, please reply to this e-mail with the word Remove in the subject line. Copyright 2005 - The Ken Roberts Company™