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Futures

Striking Options: 5/24 Gold and the E-mini S&P 500



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This video is from CME Group and is being posted with CME Group’s permission. The views expressed in this video are solely those of the author and/or CME Group and IB is not endorsing or recommending any investment or trading discussed in the video. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Options

What's Trading: COST


CBOETV - Peter Lusk, Senior Instructor, CBOE Options Institute, discusses big put selling in COST ahead of tomorrow’s after-market close earnings.

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, or at www.theocc.com. The information in this program is provided solely for general education and information purposes. No statement within the program should be construed as a recommendation to buy or sell a security or to provide investment advice. The opinions expressed in this program are solely the opinions of the participants, and do not necessarily reflect the opinions of CBOE or any of its subsidiaries or affiliates. You agree that under no circumstances will CBOE or its affiliates, or their respective directors, officers, trading permit holders, employees, and agents, be liable for any loss or damage caused by your reliance on information obtained from the program.

Copyright © 2016 Chicago Board Options Exchange, Incorporated.   All rights reserved.

This video is from CBOE and is being posted with CBOE’s permission. The views expressed in this article are solely those of the author and/or CBOE and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Options

An Oil Trade to Limit Risk


As OPEC prepares to meet Thursday, consider this low-cost, potentially high-return options trade on the Energy Select Sector SPDR ETF.
 
Billions of dollars are being wagered on a bet that OPEC will extend production cuts at its Thursday meeting—and presumably lift oil prices.

Some firms, including BlackRock, are telling clients that the recent bounce in oil prices indicates that an extension is already priced into the market.

UBS isn’t so sure. The Swiss bank is telling clients to consider a side-door trade than simply taking part in one of the world’s most crowded trades.

Julian Emanuel, a UBS derivatives strategist, said energy shares have closely tracked oil prices in recent years but seem to have disconnected this year from the historical trend. Oil is priced around $50 a barrel, but the Energy Select Sector SPDRexchange-traded fund (ticker: XLE)—comprised of major energy stocks like Exxon Mobil (XOM), Chevron (CHV),Schlumberger (SLB), and ConocoPhillips (COP)—has not participated in the snapback rally.

In fact, XLE, at a recent $68, is priced toward the bottom of a 52-week range that has seen the ETF trade from $64.11 to $78.45.

Emanuel is advising clients to buy the Energy Select Sector SPDR’s June $69 call options that expire June 30 in anticipation that the ETF will pop higher on the OPEC news.

While the trade is intriguing, it is a bit of an outlier. Deutsche Bank, for example, is warning clients that the very companies favored by UBS could come under pressure if OPEC fails to reduce production.

To be sure, many investors are concerned about dividend payments. If oil prices are unable to consolidate some of their recent gains—and preferably advance—because OPEC reduces production, some of the market’s most attractive dividends could be in danger. Exxon Mobil, for example, pays an annual dividend of $3.08, which equates to 3.76% yield.

The dividend risk is mitigated, to some degree, by using options. Anyone who uses options as proxies for stocks risks less money than buying shares.

“With stocks moving more vigorously both higher and lower at any time since before the Nov. 8 election, limited downside/unlimited upside call options appear attractive as premiums remain near the lows,” Emanuel wrote in a recent note.

The point is one we have made many times in the recent past. When options volatility is low, as it is now, investors can buy options without paying the usual fear and greed premium that otherwise constitutes a major part of options prices.

If investors knew what OPEC would decide, the risk of the trade would be substantially less. It makes sense to speculate on the event with options contracts to limit losses without giving up the chance to maximize profits. Already, investors are using this risk-adjusted approach to wager on OPEC’s outcome.

When the VanEck Vectors Oil Services ETF (OIH), for example, was trading around $27.86, an investor bought 10,000 May $28.50 calls for 38 cents that expire Friday—the day after the OPEC meeting. That expresses a view that the ETF shoots above $28.88, basically bouncing off the bottom of its trading range. OIH has traded from $26.10 to $36.35 over the past 52 weeks.

The OIH trade is notable for its size, but it is not a bold trade. What it shows is that institutional investors do not see any merit in trying to be heroic ahead of the OPEC news. They are limiting risk and trying to maximize profits by using the natural leverage inherent in options trading.

If XLE moves sharply on positive OPEC news, the call will increase in value. At $72, the call is worth $3. Should OPEC opt to halt production cuts, this trade is a likely bust, but investors would only lose the amount of money spent on the call. In other words, the XLE trade is a low-cost, potentially high-return trade.

Steven M. Sears is a Senior Editor and Columnist with Barron's. He is the author of "The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails." Mr. Sears previously reported for Dow Jones Newswires and The Wall Street Journal. He has reported upon most major modern financial events, including the Asian Contagion, the bursting of the Internet Bubble, the Credit Crisis, and Europe's sovereign debt crisis. He also was part of exchange executive teams that modernized the U.S. options market, and introduced electronic trading. Interact with him on Twitter @sm_sears.

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This article is from Barron's and is being posted with Barron’s permission. The views expressed in this article are solely those of the author and/or Barron's and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Forex

Do you like betting against one-way bets?


According to Bloomberg, positioning by specs in the long bond is the highest it has been in 10-years:


 

There are lots of good rationales for being long bonds:

1)      The US economy is slowing as seen in the 2s vs 10s yield spread tightening; i.e. the flattening of the yield curve. [US dollar index overlay is the purple line.] Thus, the Trump Reflation trade is dead and the completely revesal proves that, as you can see in the chart below.

 

2)      Inflation expectations are tumbling. Again this can be seen in a chart via Bloomberg below.


 

The jury is still out on the Fed. They cannot afford to be aggressive with the US and global economy still sluggish and at the same time reduce the size of their balance sheet.

All of that makes a lot of sense. But, there are other rationales that suggest betting against his oneway bet may be worth the risk.

  1. Wave Chart Analysis – Speaks for itself I guess. Looking for a strong Wave [iii] on the expectation minor Wave [ii] is complete. [Note: Dollar Index overlay in red.] Key support at the swing low 2.165…critical support all the way back near 1.85 (but too much risk to take; risking to a close below 2.165 seems to make sense).


     
  2. To paraphrase Mr. Twain: Reports of the death of Trump tax and regulatory reform may be greatly exaggerated. Trump had a successful overseas trip. He gave the War Party what they wanted. Arms sales, Israeli love, and Iran hate. Maybe, magically, some of this Russia-gate stuff just goes away; and some of those reform ideas reappear on the docket. Never say never in the land of sheer power politics.
     
  3. The Fed makes it clear they will be doing “at least” two more hikes this year; and begin to trim their balance sheet at the same time.
     
  4. China, coming off their fresh downgrade by Moody’s (a US captive entity that seems to perpetuate itself despite proven incompetence and tacit corruption a la the Credit Crisis) decides it no longer needs to prop up its currency by holding such a huge supply of dollar reserves in the form of Treasuries and gets even busier selling them. This, coupled with negative sentiment about the Fed balance sheet, could possibly lead to something significant.

 

Maybe our narrative is nonsense; nothing more than the usual “talking our book,” so to speak.

However, we like the fact if we are wrong we know where our risk is. But if we are right, we don’t’ know how much our profit might be in this trade. We kind of like those types of bets.

 

Black Swan Capital, LLC is an investment and trading research firm whose ideas cover foreign currencies, stocks, bonds, gold, and oil.  We integrate our global macro analysis with our technical pattern analysis (Elliott Wave) to produce unique and independent trading ideas for our newsletter subscribers.

This article is from Black Swan Capital, LLC and is being posted with Black Swan Capital, LLC’s permission. The views expressed in this article are solely those of the author and/or Black Swan Capital, LLC  and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Technical Analysis

NASDAQ Technical Take: Keep an eye on Transportation index


The Dow Jones Transportation Index is having a solid week with a 3% gain over the prior five sessions which began with last week’s kiss off the 200-day sma.  The last time the index touched this widely followed sma was in August 2016 when it acted as reliable support within the early stages of the strong post-Brexit rally.  After that post-Brexit rally which gained 37% to its March 1 highs, the Transports this time find themselves in a minor downtrend of lower highs and lower lows.  And this recent five day winning streak is now running into a number of minor and intermediate levels of resistance. 

Starting with the moving averages, the 50-day sma is immediately above at 9,066 while the 100-day sma is just 1.6% away.  Splitting those two levels of resistance is the declining trendline connecting the March and April highs.   Then you have the ~9,044 level which was a minor resistance in November but has since acted as minor support on numerous occasions in 1H’17.  How this industry’s chart resolves could provide a good indication on the current state of the US economy.  This Friday is the first revision of the Q1 GDP estimate which initially came in at 0.7%. 

Economists on average are looking for a revision higher to 0.9%.  GDP however is a lagging indicator and investors are certainly more focused about Q2.  The latest forecast out of the Atlanta Fed is for 4.1% GDP growth however the next revision is Friday, May 26th and as we saw in Q1 there is certainly a chance for a string of reduced estimates over the remaining weeks in the quarter.    

 

Nasdaq's Market Intelligence Desk (MID) Team includes: 

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT has 16 years of trading desk experience. Prior to joining Nasdaq Brian executed equity orders and provided trading ideas to institutional clients. He also contributed technical analysis to a fundamental research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Airline companies among others understand the trading in their stock. Brian is a Chartered Market Technician.

This article is from Nasdaq and is being posted with Nasdaq’s permission. The views expressed in this article are solely those of the author and/or Nasdaq and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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