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Leveraged Contracts with Liquidity Provide the Best Chance For Profits

Submitted by foltarsh on 08/24/2010 10:24 -0400

Establishing profitable positions in options and futures contracts is a difficult challenge. The percentage of speculators making money is very small. Slippage and commissions take a significant toll on the likelihood of profitability. Due to this important issue, it is necessary to locate contracts which are most likely to provide opportunities for gains.

On a daily basis, we publish a Nightly Futures and Options Update. One of the pieces of information included in this report the Dollar Average Trading Range. The larger the value, the less the impact commissions will have on trading. It is however, crucial to be certain that the contract is liquid. Liquidity determines the amount of slippage and ultimately the cost of doing business. Liquidity in markets can change quickly depending upon news and supply and demand, but small contracts make it difficult to earn money. Contracts which put a trader in a position to make money because of the size and movement of the contract include SP, ND, KC, EU, W, CL and NG. They are contracts which provide adequate swings to assist traders in avoiding the pain of commissions. This list isn't meant to be exclusionary but it is meant to encourage one to consider what is necessary to make money in the long run.

Most markets are considerably more liquid than they were ten years ago. This is very helpful for the average customer trading the markets. Liquidity levels the playing field. Considering the dollar value movement of the contracts you trade can also improve your chances or making money. Sugar, for example, has comparatively small dollar value day to day changes. If you catch a 2.5% move in Coffee versus a 2.5% move in Sugar, subtract commissions and continue trading smaller moves, in the end, the commissions in Sugar will be much more noticeable.

Leverage and slippage are extremely important factors to consider when contemplating a position. There are numerous other considerations when seriously entering an options position. I would be interested in discussing your ideas and finding out if I might be of assistance. You can reach me at 212-383-9453.

All options on futures strategies involve implied and historical volatility and skew analysis. Vega, gamma and delta calculations are also monitored. In addition, understanding slippage is essential. Please call me to be sure you are using the correct strategy for your needs. You can call me directly at 212-383-9453 or reach me at fred.oltarsh@libanman.com. You can also visit our website http://www.libanman.com/. We have a Daily Futures and Options Report and a weekly Commitment of Trader's Report which is available by email.

FUTURES AND OPTIONS TRADING INVOLVES SIGNIFICANT RISK AND IS NOT SUITABLE FOR EVERY INVESTOR. INFORMATION IS OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE, BUT IS IN NO WAY GUARANTEED. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS