The 3Dimensional Trading Breakthrough

The 3 Dimensional Trading Breakthrough
Locking in Profits
For those traders who consider themselves “short-term swing traders” that would
prefer NOT to initiate positions with options as protection, but rather put in a
protective stop-loss as the alternative, I will describe a method to lock in profits
AFTER the position shows a positive return.
Basically, most novice traders will opt to offset a profitable position once the market
puts them “in the black” and walk away from the trade only to look for something
else…remember now, we are supposed to be trend followers in this business!
Don’t walk away, or be distracted, with other markets. Focus your attention on
your market which is trending and stick with it. As an alternative to walking away
(with profit of course, Getting in…getting out…), a simple option strategy can keep
you involved with the overall trend while locking in profits.
When to Buy the ATM Option and Sell the OTM Option
My position has a profit. I am long the bond market from 118^18 and immediately
bonds trade higher to 120^03. I have a profit just over $1,500.00 and I see in
the charts that the objective for this market is 121^02. At the same time, bonds
may make a temporary hasty retreat to find support BEFORE reaching that 121^02
price. I can very simply buy an ATM Bond 120 put option and sell an OTM Bond
121/122 call option. The price I buy the put option for will be slightly higher than
the premium I am credited for with the call. Keep in mind this is only performed
after a momentum cycle change, from up to down, with the underlying futures.
Also, this should be performed when the position I am in first makes a change in
direction opposite of my position. If not, I am NOT “locking in” profit!
Selling Back Original “Insurance” on Market Reversals
With the position mentioned above, the momentum cycle is now down. My
future contract is losing in value, while the 130 put option is gaining in value, and
the short 131/132 call option is “decreasing” in value (what we want it to do).
As always, there will come a point where at least one of the three momentumchanging
signals will be realized and the momentum cycle shifts, from down to
up. Time to take profit on the options and let the futures continue in the intended
direction. Hopefully, the market has traded down/sideways enough for the put
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