The 3Dimensional Trading Breakthrough

The 3 Dimensional Trading Breakthrough
2. The option will be at-the-money (ATM). The long
futures position will be at the put option strike price.
In this case, because the long futures contract is at or near the put option strike
price, I will simply keep this position as is and resume trading with the trend.
3. The option will be in-the-money (ITM). The long
futures position will be below the option strike price.
In this last scenario, if I reset my long futures contract below the put option strike
price, I want to take into consideration the value of the original option I purchased.
For example, if I reset at $3.02½/bu. and my put option (that was originally
purchased at 15½¢) is now worth 19½¢, I would choose to sell back the 310 put
(while realizing yet another profit) and buy the Dec Wheat 300 put instead. If the
300 put is valued at 14¢, and my long futures is 2½¢ OTM, then my overall risk is
16½¢ – almost exactly like it was when I initiated the original position! In addition,
I now have about a 14¢ profit! This is what professional trading is all about…taking
advantage of price in all of the instruments that are available to us as traders. Here
is what this looks like in table form:
Date
Futures
Option 1
(Original
Insurance)
Option 2
(Short/
Covered
Option)
Overall
Position
Risk
Current
Profit/Loss
Start Date
“SD”
Bought
Long @
$3.11¼
Purchased
310 put for
15½¢
N/A
16¾¢
[$837.50]
N/A
SD + 5
$3.02½
Sell back
310 put
For 19¢.
Buy 300
put
For 14¢.
N/A
16½¢
[$825]
13¾¢
$687.50
- 94 -