You
have subscribed to Joe Ross' Weekly Spread Scan Newsletter.
If you have problems reading this newsletter, please follow this link:
Spread
Scan Issue: November 13, 2006 - Volume 118
To unsubscribe, scroll past the end of this newsletter and click the "unsubscribe" link.Otherwise, welcome to this week’s issue of the
Joe Ross Spread Trading Newsletter.Each week we present spread trading examples and opportunities in order to help you become a more professional spread trader.
Be sure you receive all your issues of Spread Scan so that you can continue to enjoy learning through the best free educational trading information available, and so that we can keep you informed about additional educational services and products to help you grow as a successful and profitable spread trader.
Today we consider an intra-market meats spread: long April 07 Lean Hogs and short February 07 Lean Hogs (LHJ7 – LHG7). On the top chart we see that the spread broke out of its June and October high last Friday. On the second chart, we see both of the outright futures, LHJ7 and LHG7, plus the spread (blue line). Notice the following: whenever LHG7 moved down, the spread moved up. Whenever LHG7 moved, up the spread moved down. This is typical for what is called a “bear spread.” The question is, what will happen now with LHG7? Will it keep on moving down after breaking out of its range? If so, the spread has a good chance of moving higher. Conservative traders can wait for the next RH to enter (together with a possible 1-2-3 high in LHG7.)
Traders may want to enter the spread MOC on Monday 11/13 (or wait for the next Ross Hook). Margin for the spread is $675 (reduced margin). Suggested risk is $400. Initial projected objective is $400, then a move to 6.0 or higher. Basis is seasonal (approx. 11/10 – 1/10) and a break out of the June and October high.
On November 7 we told subscribers of our daily newsletter, Traders Notebook, "Consider entering an inter-market interest rates spread USZ6 – TYZ6 at a spread value of 4^21. Margin for the spread is $729 (reduced margin). Suggested risk is $625. Initial projected objective is $625, then a move to 6^0 or higher. Basis is seasonal (11/03 – 12/12) and a RH. Comment: Unfortunately we did not get any entry signal earlier. The spread went up directly from 3^12 to 4^20. Now we get a Ross Hook for an entry. If you want to enter more aggressively, you can enter the moment the market moves higher, with a close stop below 4^05."
Here's how we suggested managing this trade:
11/07 Suggest entering MOC tomorrow (if not already in).
11/10 Spread moved up nicely today. Depending on your calculated risk, suggest taking some money (if not already done) and moving stop to break even.Open equity on remaining contracts: $312 per contract. Please keep in mind that we already realized profits of about $312.
For more information about our daily newsletter, read on below or visit
http://www.spread-trading.com/tradersnotebook/index.htm
Questions or Comments? Please email us: support@spread-trading.com
Student's Question: "Andy, is there anything to protect my position against limit days regarding spreads?"
Unfortunately there is not much you can do. The only way to protect your position is to use a stop order close to the limit, but whenever the market explodes or collapses, even a stop order won’t help, especially in open outcry markets. When I am holding an intra-market position like LH-LH, I try to stay calm. Usually the spread itself isn’t moving much because both months are moving in the same direction. This is different when trading inter-market spreads like FC-LC. A spread trader needs to know that inter-market spreads include a higher risk than intra-market spreads. The following list is in order of increasing risk:
- intra-market spread, same crop year
- intra-market spread, different crop year
- inter-market spreads
- exotic spreads (like orange juice – S&P 500)Whenever I trade inter-market spreads I pay a lot of attention to every report that could affect my trade, and try to reduce my position before the report comes out, or even close my position completely.
Join our Trading Community Forum at Trading Educators!
© 2006 by Trading Educators, Inc
Contact
Us
1509 Jackson Drive
Cedar Park, TX 78613
Phone: 800-476-7796 or 512-249-6930
You
can e-mail us: support@spread-trading.com
Office hours are Monday - Friday 9 A.M. to 5 P.M., U.S.C.T.
Unsubscribe or change subscription
To change your subscription or to unsubscribe, scroll past the end of this
newsletter to click the "unsubsribe" link.
Disclaimer:
The Commodity Futures Trading Commission has asked us to advise you that trading spreads is complex and carries a high degree of risk. While there is opportunity for incredible wealth building, there is also the risk of losing even more than you invested. Of course, that's not unlike most other businesses. But informed traders are the best traders!