The 3Dimensional Trading Breakthrough

The 3 Dimensional Trading Breakthrough
A Detailed Outline of a Basic Trade
1. Initiated long futures position at 6605. Bought one 6600 put option for
1.60 points.
2. Monitored the position every day for potential downward price movement,
which would indicate a possible “shift” in momentum.
3. On the fourth day, I determined that a price of 6945 would shift the
momentum, from up to down, and when 6945 was realized I evaluated the
overall trend as still “bullish.”
4. To maintain my bullish posture with this market, and to further reduce my
risk, I evaluated how much my original put option (insurance) was worth
NOW. I determined the difference and calculated the net loss as 1.15
points.
5. I then looked to the different strike prices of the call options, and
“evaluated” the premiums. I specifically looked for a call option that was
worth a minimum of 1.15 points.
6. Once I determined the 7000 call option was the optimal strike price to sell,
I sold it short with it being “covered” by my long futures position. (There is
no additional margin by selling this call option short when it is covered by
a long futures position. In fact, the margin is actually reduced by the credit
the short option creates!) Total risk: .43 points for 82 days of protection
and trading plus a $1,360.00 open profit!
7. Now that the overall position risk has been reduced even further, this allows
me even more time to reevaluate the market as price structure unfolds. I
am now letting the market tell me what it wants to do…whilst knowing I am
fully covered, I feel like I am really going someplace in the markets with a
low-risk / low-stress method of directional trading that can be used in any
market!
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