I ll explain this by setting up a few bets on the NY Yankees. Everyone knows the Yankees are a very good team. Does that.
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Picking a strike at the money is an ideal option strike for traders who want to get the best bang for their buck, meaning a strike precisely around the current price. Looking at the option deltas is another preferable idea.
Ever since the trading industry was slowly taken over by computers, various new products have been created that traders now use to hedge, insure against and speculate risk.
Although the straight up day trading of futures is more common among day traders, an alternative is provided by weekly options on futures. Although the short expiration of weekly options on futures can make them seem extremely risky, there is great potential in day trading the E-mini S&P 500 Futures weekly options. What Are The Benefits?
- Traders do not need a futures account
- The risk is limited when buying weekly options
- Traders do not have to follow the pattern day trade rule
Another advantage of day trading weekly options is that the value of options increases quickly, moving in favor of the trader when going long and their value decreases slower, when moving against the trader.
Uses For E-mini S&P 500 Futures Weekly Options
- Hedge or insurance against other positions
- Short term price swings (1-3 day and intraday fluctuations)
- News plays
Just like futures, great intraday opportunities become available when E-mini S&P 500 futures weekly options are traded on the 15-minute chart. The E-mini S&P 500 futures weekly options can also be used to enter on the daily chart.
Capital Requirements & Cost Structure
Despite acting just like other stock options, the cost structure of options on futures is slightly different. The equivalent of 100 shares of a particular stock is controlled by a traditional stock option, so a .50 option has to be purchased for 0. However, for E-mini S&P 500 futures weekly options, 100 shares of stock are not controlled by them. Therefore, a .50 option can be purchased for 5.
Which Strike To Buy?
If a trader has a setup on the E-mini S&P 500 futures 15-min chart with 2 points being yielded between the 50% and 61.8%, looking to the delta can provide a clue of the risk involved.
For each point the E-mini S&P 500 futures moves, the weekly option contract will move approximately half of the delta's value. So for instance, if looking at an option with a 0.50 delta, a 2 point move can be estimated by traders against themselves, as a result of which a loss of would be yielded.
This method of managing risk by using the option delta to derive the strike price is much better. Taking a look at the pointing being yielded between the 50% and 61.8% is just a starting point. Traders can get an idea of their reward/risk by looking out to the target of -23%.
Why Is Day Trading Weekly Options On Futures An Ideal Alternative?
A low risk method to day trade is provided by weekly E-mini S&P 500 futures weekly options to day trade the daily and 15-minute levels. For traders who are not certain about trading futures or do not have a futures account, this gives them a reason to learn to day trade since they get an excellent means to control risk.
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