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
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|
|CALL RATIO BACKSPREAD: Leg 2|
|Trading Symbol||HXE X6|
|ADAPTIVE FUTURES STRATEGY|
|Trading Symbol||HG Z6|
|Contract Expiry||Dec 2016|
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.
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.
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