The Breakout of Consolidation Zone

A consolidation pattern (pennant, flag, rectangle,…) represents the indecision of the market. They can be considered “continuation patterns” or “reversal patterns” and remain valid until a trend line is broken. These patterns represent periods of indecision in which the direction of the breakout depends on the strength of the buyers and sellers.

ADAPTED OPTION STRATEGY: BEARISH PUT SPREAD

As the downside is potentially limited by the next significant support level at 1248 (the low of April 10) , a bear spread allows you to lower the cost of the strategy (in comparison to a straight long put) by selling a put out of the money. As a result, the strategy consists of the simultaneous purchase of a put with a strike of 1260 and the sale of a put with a strike of 1250 for a net debit.

BEARISH PUT SPREAD: Leg 1

Trading Symbol OG M7
Option Type PUT
Option Strategy LONG
Strike 1260.00
Expiration DEC 17

BEARISH PUT SPREAD: Leg 2

Trading Symbol SO Z7
Option Type PUT
Option Strategy SHORT
Strike 1250.00
Expiration DEC 17

ADAPTIVE FUTURES STRATEGY

Trading Symbol GC M7
Strategy SHORT
Entry Point 1264.50
Target 1248.00
Stop Loss 1272.50
Contract Expiry DEC 17

THE BREAKOUT OF CONSOLIDATION ZONE: GC M7 APR 17

ACTUAL OUTCOME

POTENTIAL GAIN PER CONTRACT

The target is set at 1248 (the low of April 10).

POTENTIAL DOWNSIDE PER CONTRACT

If prices broke above 1272.5, the position should be closed with limited loss.

The breakout of consolidation zone happening now

Corns: ZC

AUD: 6A


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