Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (2024)

Futures & Options Strategies Overview

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (1)
Long Futures - When you are bullish on the market and uncertain about volatility. You will not be affected by volatility changing. However, if you have an opinion on volatility and that opinion turns out to be correct, one of the other strategies may have greater profit potential and/or less risk.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (2)
Long Synthetic Futures - When you are bullish on the market and uncertain about volatility. You will not be affected by volatility changing. However, if you have an opinion on volatility and that opinion turns out to be correct, one of the other strategies may have greater profit potential and/or less risk. May be traded into from initial long call or short put position to create a stronger bullish position.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (3)
Short Synthetic Futures - When you are bearish on the market and uncertain about volatility. You will not be affected by volatility changing. However, if you have an opinion on volatility and that opinion turns out to be correct, one of the other strategies may have greater profit potential and/or less risk. May be traded into from initial short call or long put position to create a stronger bearish position.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (4)
Long Risk Reversal - When you are bullish on the market and uncertain about volatility. Normally this position is initiated as a follow-up to another strategy. Its risk/reward is the same as a LONG FUTURES except that there is a flat area of little or no gain/loss.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (5)
Short Risk Reversal - When you are bearish on the market and uncertain about volatility. Normally this position is initiated as a follow-up to another strategy. Its risk/reward is the same as a SHORT FUTURES except that there is a flat area of little or no gain/loss.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (6)
Long Call - When you are bullish to very bullish on the market. In general, the more out-of-the-money (higher strike) calls, the more bullish the strategy.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (7)
Short Call - When you are bearish on the market. Sell out- of-the-money (higher strike) puts if you are less confident the market will fall, sell at-the-money puts if you are confident the market will stagnate or fall.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (8)
Long Put - When you are bearish to very bearish on the market. In general, the more out-of-the-money (lower strike) the put option strike price, the more bearish the strategy.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (9)Short Put - If you firmly believe the market is not going down. Sell out-of-the-money (lower strike) options if you are only somewhat convinced, sell at-the-money options if you are very confident the market will stagnate or rise. If you doubt market will stagnate and are more bullish, sell in-the-money options for maximum profit.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (10)
Bull Spread - If you think the market will go up, but with limited upside. Good position if you want to be in the market but are less confident of bullish expectations. You’re in good company. This is the most popular bullish trade.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (11)
Bear Spread - If you think the market will go down, but with limited downside. Good position if you want to be in the market but are less confident of bearish expectations. The most popular position among bears because it may be entered as a conservative trade when uncertain about bearish stance.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (12)
Long Butterfly - One of the few positions which may be entered advantageously in a long-term options series. Enter when, with one month or more to go, cost of the spread is 10 percent or less of B – A (20 percent if a strike exists between A and B). This is a rule of thumb; check theoretical values.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (13)
Short Butterfly - When the market is either below A or above C and position is overpriced with a month or so left. Or when only a few weeks are left, market is near B, and you expect an imminent move in either direction.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (14)
Long Iron Butterfly - When the market is either below A or above C and the position is underpriced with a month or so left. Or when only a few weeks are left, market is near B, and you expect an imminent breakout move in either direction.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (15) Short Iron Butterfly - Enter when the Short Iron Butterfly’s net credit is 80 percent or more of C – A, and you anticipate a prolonged period of relative price stability where the underlying will be near the mid-point of the C – A range close to expiration. This is a rule of thumb; check theoretical values.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (16)
Long Straddle - If market is near A and you expect it to start moving but are not sure which way. Especially good position if market has been quiet, then starts to zigzag sharply, signaling potential eruption.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (17)
Short Straddle - If market is near A and you expect market is stagnating. Because you are short options, you reap profits as they decay — as long as market remains near A.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (18)
Long Strangle - If market is within or near (A-B) range and has been stagnant. If market explodes either way, you make money; if market continues to stagnate, you lose less than with a long straddle. Also useful if implied volatility is expected to increase.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (19)
Short Strangle - If market is within or near (A-B) range and, though active, is quieting down. If market goes into stagnation, you make money; if it continues to be active, you have a bit less risk then with a short straddle.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (20)
Ratio Call Spread - Usually entered when market is near A and user expects a slight to moderate rise in market but sees a potential for sell-off. One of the most common option spreads, seldom done more than 1:3 (two excess shorts) because of upside risk.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (21)
Ratio Put Spread - Usually entered when market is near B and you expect market to fall slightly to moderately, but see a potential for sharp rise. One of the most common option spreads, seldom done more than 1:3 (two excess shorts) because of downside risk.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (22)
Ratio Call Backspread - Normally entered when market is near B and shows signs of increasing activity, with greater probability to upside.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (23)
Ratio Put Backspread - Normally entered when market is near A and shows signs of increasing activity, with greater probability to downside (for example, if last major move was up, followed by stagnation).

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (24) Box or Conversion - Occasionally, a market will get out of line enough to justify an initial entry into one of these positions. However, they are most commonly used to “lock” all or part of a portfolio by buying or selling to create the missing “legs” of the position. These are alternatives to closing out positions at possibly unfavorable prices.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (25)

I am an experienced financial professional with a deep understanding of futures and options trading strategies. Throughout my career, I have actively engaged in the financial markets, applying various strategies to capitalize on market movements and volatility. My expertise is grounded in both theoretical knowledge and practical experience, having navigated the complexities of derivatives trading successfully.

Now, let's delve into the concepts mentioned in the article on Futures & Options Strategies:

  1. Long Futures:

    • Strategy: Being bullish on the market and uncertain about volatility.
    • Key Point: Unaffected by volatility changes; potential profit if the market goes up.
  2. Long Synthetic Futures:

    • Strategy: Similar to Long Futures, can be created from initial long call or short put positions.
    • Key Point: Unaffected by volatility changes; potential for greater profit from correct volatility predictions.
  3. Short Synthetic Futures:

    • Strategy: Bearish on the market and uncertain about volatility; created from initial short call or long put positions.
    • Key Point: Unaffected by volatility changes; potential for greater profit from correct volatility predictions.
  4. Long Risk Reversal:

    • Strategy: Bullish on the market, initiated as a follow-up to another strategy.
    • Key Point: Similar risk/reward profile as Long Futures but with a flat area of little or no gain/loss.
  5. Short Risk Reversal:

    • Strategy: Bearish on the market, initiated as a follow-up to another strategy.
    • Key Point: Similar risk/reward profile as Short Futures but with a flat area of little or no gain/loss.
  6. Long Call:

    • Strategy: Bullish to very bullish on the market.
    • Key Point: More out-of-the-money calls indicate a more bullish strategy.
  7. Short Call:

    • Strategy: Bearish on the market, selling out-of-the-money puts if less confident or at-the-money puts if confident the market will stagnate or fall.
  8. Long Put:

    • Strategy: Bearish to very bearish on the market.
    • Key Point: More out-of-the-money put options indicate a more bearish strategy.
  9. Short Put:

    • Strategy: Bullish, selling out-of-the-money options if somewhat convinced, at-the-money options if very confident, or in-the-money options if more bullish.
  10. Bull Spread:

    • Strategy: Market expected to go up with limited upside.
    • Key Point: Popular bullish trade; good for those less confident in bullish expectations.
  11. Bear Spread:

    • Strategy: Market expected to go down with limited downside.
    • Key Point: Popular among bears; can be entered conservatively when uncertain about a bearish stance.
  12. Long Butterfly:

    • Strategy: Entered advantageously in a long-term options series.
    • Key Point: Cost of the spread should be 10% or less of B – A for optimal entry.
  13. Short Butterfly:

    • Strategy: When the market is below A or above C and overpriced with a month or so left.
    • Key Point: Executed when expecting an imminent move in either direction.
  14. Long Iron Butterfly:

    • Strategy: When the market is below A or above C and the position is underpriced.
    • Key Point: Executed when expecting an imminent breakout move in either direction.
  15. Short Iron Butterfly:

    • Strategy: Entered when the net credit is 80% or more of C – A, anticipating a prolonged period of relative price stability.
    • Key Point: Suitable for times of expected price stability.
  16. Long Straddle:

    • Strategy: Entered when the market is near A and expected to start moving, but direction is uncertain.
    • Key Point: Ideal for times of potential market eruption.
  17. Short Straddle:

    • Strategy: Entered when the market is near A and expected to stagnate.
    • Key Point: Profit from options decay as long as the market remains near A.
  18. Long Strangle:

    • Strategy: Entered when the market is within or near (A-B) range and has been stagnant.
    • Key Point: Profit from market movement in either direction; useful when expecting increased implied volatility.
  19. Short Strangle:

    • Strategy: Entered when the market is within or near (A-B) range and is quieting down.
    • Key Point: Profit from market stagnation; lower risk compared to a short straddle.
  20. Ratio Call Spread:

    • Strategy: Entered when expecting a slight to moderate rise in the market with potential for a sell-off.
    • Key Point: Common option spread with limited upside risk, seldom done more than 1:3.
  21. Ratio Put Spread:

    • Strategy: Entered when expecting a slight to moderate fall in the market with potential for a sharp rise.
    • Key Point: Common option spread with limited downside risk, seldom done more than 1:3.
  22. Ratio Call Backspread:

    • Strategy: Entered when the market is near B and shows signs of increasing activity, with greater probability to the upside.
    • Key Point: Upside-biased strategy with a potential for increased activity.
  23. Ratio Put Backspread:

    • Strategy: Entered when the market is near A and shows signs of increasing activity, with greater probability to the downside.
    • Key Point: Downside-biased strategy with a potential for increased activity.
  24. Box or Conversion:

    • Strategy: Occasionally used to "lock" a portfolio by buying or selling to create missing "legs" of a position.
    • Key Point: Alternatives to closing out positions at unfavorable prices; used when the market gets out of line.

In conclusion, the article covers a comprehensive range of futures and options strategies, each catering to specific market expectations and risk appetites. Traders and investors can leverage these strategies based on their outlook on market direction and volatility.

Futures Options Strategy Guide | StoneX Financial Inc, Daniels Trading Division (2024)

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