Declining trend line breakout

  • 20 Dec 2016
  • By Trading Central
  • Topics: Metals

When an established declining trend line has been acting as resistance for a long period of time, an opportunity to buy the instrument can appear when prices break above this key declining trend line after at least 3 attempts to break it have failed. In our example below, Copper broke above a major declining resistance trend line in place since the end of 2015

ADAPTED OPTION STRATEGY: BULL PUT SPREAD

As the upside potential is unlimited, selling premium can be an excellent strategy to create income during volatile market periods. As long as price of Copper remains above 2.085, this strategy will keep the initial credit received. Pairing a short put with a long put at a lower strike price helps reduce the margin required for an outright naked put position and defines the total risk of the strategy on the downside. The whole spread positon is entered for a net credit.

CALL RATIO BACKSPREAD: Leg 1  
Trading Symbol HXE X6
Option Type PUT
Option Strategy Sell
Strike 2.08
Expiration Nov 2016
CALL RATIO BACKSPREAD: Leg 2  
Trading Symbol HXE X6
Option Type PUT
Option Strategy Buy
Strike 2.01
Expiration Nov 2016
ADAPTIVE FUTURES STRATEGY  
Trading Symbol HG Z6
Strategy LONG
Entry Point 2.243
Target 2.464
Stop Loss 2.085
Contract Expiry Dec 2016

POTENTIAL GAIN PER CONTRACT

The maximum gain for The bull Put spread is the net premium received from selling the 2.08 put and buying the 2.01 Put. The potential gain for the long futures position is unlimited.

DECLINING TREND LINE BREAKOUT: HG Z6 NOV 1ST

ACTUAL OUTCOME

POTENTIAL DOWNSIDE PER CONTRACT

If copper falls below the stop loss set at 2.085 the position is closed for a limited loss. For the Put Spread, the maximum downside is the difference between the strike price of 2.08 and 2.01 minus the premium received from selling the spread.

Declining trend line breakouts happening now.

OATS: ZO

Soybean Oil: ZL


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