Joe Ross
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Hey Joe! How should individual traders with not so large accounts handle times of increasing volatility? I’m a long term trader and I have to find a way to stay in the market!
Personally, I think that high volatility offers a great opportunity for smaller traders to participate in the commodity markets. I’m not talking about all futures here. I’m referring to the commodity futures in particular.
Your participation needs to be done in such a way that you capitalize on volatility. Don’t try to “call” the market. Don’t look for tops and bottoms. Stay away from indicators. In a volatile situation you have to do the opposite of everyone else. By that I mean look to the fundamentals. Look to trade in commodities with strong fundamental prospects and a potential to see excessive volatility. Gold is a great example. Crude oil and natural gas are good examples as well.
Now let me tell you how to play the situation: You need to begin trading options and futures combinations so that you can truly define risk. Here are examples of how I would go about it. Let’s say you realize in the long-term gold is going to hit $2,000 (I believe it will, but I don’t know when). So I would go long futures and long a put so I could define more precisely what my risk will be. If you think something is going down, go short futures and long a call. Other examples would be to short a futures contract and long multiple calls, or long a futures contract and long multiple puts.
In my opinion, using futures with multiple offsetting option plays is a way to play a long-term position in futures and benefit from increased volatility. Of course, you will still have to have a correct opinion in the market for the most part and you will have to find a market that has the potential to become volatile, but these days that’s easy. You could also simply enter outright long option plays, but without an offsetting futures position, a mistake in timing would be a critical to your success.
Personally, I think that high volatility offers a great opportunity for smaller traders to participate in the commodity markets. I’m not talking about all futures here. I’m referring to the commodity futures in particular.
Your participation needs to be done in such a way that you capitalize on volatility. Don’t try to “call” the market. Don’t look for tops and bottoms. Stay away from indicators. In a volatile situation you have to do the opposite of everyone else. By that I mean look to the fundamentals. Look to trade in commodities with strong fundamental prospects and a potential to see excessive volatility. Gold is a great example. Crude oil and natural gas are good examples as well.
Now let me tell you how to play the situation: You need to begin trading options and futures combinations so that you can truly define risk. Here are examples of how I would go about it. Let’s say you realize in the long-term gold is going to hit $2,000 (I believe it will, but I don’t know when). So I would go long futures and long a put so I could define more precisely what my risk will be. If you think something is going down, go short futures and long a call. Other examples would be to short a futures contract and long multiple calls, or long a futures contract and long multiple puts.
In my opinion, using futures with multiple offsetting option plays is a way to play a long-term position in futures and benefit from increased volatility. Of course, you will still have to have a correct opinion in the market for the most part and you will have to find a market that has the potential to become volatile, but these days that’s easy. You could also simply enter outright long option plays, but without an offsetting futures position, a mistake in timing would be a critical to your success.
