4 replies to this topic

[viccarter]

Which instrument do you use to trade the Russell 2000? How do you manage trades which are longer term in nature if you want leverage? By longer term, I mean 4 weeks or longer holding a position.

Let us analyze the following:

The date is February 13, 2013. Trader 1 has a daily buy signal on the RUT at around 910. The weekly signal is also on a buy. Trader 1 believes strongly in the continuation of that weekly uptrend, and her target is 950 RUT area, however, she understands that the daily chart is getting very overbought and is cautious about this. Trader 1 expects to be close to her targets within 4 weeks.

Trader 1 has the following parameters with regard to position sizing.

1 TF Contract = 910 X 100 = $91,000 = (A 25% Position)

2 TF Contract = 910 X 100 x 2 =$182,000 = (A 50% Position)

3 TF Contract = 910 X 100 x 3= $273,000 = (A 75% Position)

4 TF Contract = 910 X 100 x 4 = $364,000 = (A 100% Position)

Here on February 13, 2013 Trader 1 wants to allocate a 50% position size toward her idea. Ideally, she would buy 2 TF contracts, however she is concerned about March 7, 2013 rollover. She feels that she can manage potential drawdown here, as she is confident in her weekly thesis, but the rollover is an additional obstacle which needs planning. What if she is involved in a large drawdown near rollover and still confident in the weekly thesis? Not only will she have to manage her position both actually and psychologically during the potential drawdown, but also the rollover will have to be managed.

So what does she do? What is her best option?

A.) Buy 2 March TF contracts
B.) Buy 2 June TF contracts (but remember that on Feb 13, 2013, the June has almost 0 volume, but assuming she could get a reasonable fill)
C.) Buy 2 June ES contract (more volume, easier to get a fill on Feb 13, but Trader 1 is not an ES trader)
D.) Buy 1500 TNA @ $40 (but this is pushing her margin in equities account, plus some do not like to hold leveraged ETF that long)
E.) Buy 2000 IWM @$91 (but assume that she has another position or 2 in her equities account and will have to liquidate them to get the $182,000 margin clear, plus she won't be able to add to the position)

Given Trader 1's circumstances how does she execute and manage her position.

How would YOU execute and manage this idea? Opinions wanted and please incorporate the facts of what actually happened in the market after Feb.13, 2013 into your ideas and data, as this is one reason I chose this fact pattern.

Edited by viccarter, 22 June 2013 - 11:07 AM.

[kssmibotm]

A.) Buy 2 March TF contracts
B.) Buy 2 June TF contracts (but remember that on Feb 13, 2013, the June has almost 0 volume, but assuming she could get a reasonable fill)
C.) Buy 2 June ES contract (more volume, easier to get a fill on Feb 13, but Trader 1 is not an ES trader)
D.) Buy 1500 TNA @ $40 (but this is pushing her margin in equities account, plus some do not like to hold leveraged ETF that long)
E.) Buy 2000 IWM @$91 (but assume that she has another position or 2 in her equities account and will have to liquidate them to get the $182,000 margin clear, plus she won't be able to add to the position)

I'm not a futures traders, so I can not offer an opinion since options A-C would be off the table for me. I wonder, though, why there is not an option F, which would be to buy ITM Mar calls on IWM? That would be my favored option if the account is margin limited.

KMB

[viccarter]

A.) Buy 2 March TF contracts
B.) Buy 2 June TF contracts (but remember that on Feb 13, 2013, the June has almost 0 volume, but assuming she could get a reasonable fill)
C.) Buy 2 June ES contract (more volume, easier to get a fill on Feb 13, but Trader 1 is not an ES trader)
D.) Buy 1500 TNA @ $40 (but this is pushing her margin in equities account, plus some do not like to hold leveraged ETF that long)
E.) Buy 2000 IWM @$91 (but assume that she has another position or 2 in her equities account and will have to liquidate them to get the $182,000 margin clear, plus she won't be able to add to the position)

I'm not a futures traders, so I can not offer an opinion since options A-C would be off the table for me. I wonder, though, why there is not an option F, which would be to buy ITM Mar calls on IWM? That would be my favored option if the account is margin limited.

KMB

Thanks, I have spent thousands of hours studying the movement of RUT and SPX on all timeframes, but I have never studied options. I would not feel comfortable trading them directly unless I knew all the in's and out's.
To be honest, I find hedging to be extremely difficult, and I consider myself to be a pretty sophisticated index trader. I am much more comfortable swing trading longer term with a 25% or 50% of a full position, rather than putting on a large position and trying to hedge around it.

There have been instances where I have traded a TF, TZA or TNA mix on different timeframes using different systems.

What I am trying to get at here is: what is the best way to trade leverage on a position basis? I have often found it difficult to get IWM shares to short when you really want them -- and that does not involve leverage. As you mentioned TZA/TNA are poor options for this unless you can borrow and short them (short TZA for long and TNA for short thesis) , but of course you can rarely borrow those shares when you want them.

[CLK]

I think the biggest problem is that markets go up or sideways most of the time, only a small percentage is spent in decline, so odds are already 75/25 against you to be able to weather a short position unless you hit it just right. Mark already posted about picking tops today. I don't think you can do better than a 25% position trying to find the top, unless the market is in a secular bear market.

[merciless]

Just my humble opinion, but trying to make consistent long term profits with options is a fools game if you are the buyer. An occasional put or call if you are trying to catch a move in a fast market is one thing but time decay is the option buyers foil, and leads most option players to eventual ruin. If you have to trade options learn to sell em. If you re a trader proper money management is the single most important key to success. You want to make a lot of money learn to trade futures. Never enter a trade without knowing your exit for short term trades, be willing to take a loss, remember its not about being right or wrong, as semibizz says its about mining profits. Learn to daytrade the daily signals that all markets give. There are numerous predictable setups in every market everyday that can be exploited with short term highly leveraged trades for consistent profits. Once you learn to trade these signals like the bots, your profits can multiply exponentially. Many of my personal trades last minutes if not seconds, which is why I can t always post during the day. If you have unlimited funds you could always arbitrage the futures market or the indices. If you decide to play in the futures sandbox make sure you use stops for any trade lasting more than a few minutes......trade safe PS if I have time tomorrow I ll post Fridays setups and trades. Its my youngest daughters 11 th bday and its time for cake