Getting Technical with Futures & Options

The Support/Resistance Overlap Strategy

The Support/Resistance Overlap Strategy Currently, we can identify many overlap situations happening right now in the markets. Before showing you new ones, let’s explain in detail the psychological process involved in such situations. In other words, why does a former support level becomes a new resistance mark (polarity principle) ? We will describe 3 steps to this very clear process: Step 1: you’re a seller above 10 // you’re a buyer above 10 Step 2: the price breaks below 10 and so you earn money // the price breaks below 10 and so you lose money Step 3: the price pulls back on 10 and you take this opportunity to consolidate your shortselling position around your average price, therefore contributing the price to turn down 10 again // the price throws back on 10 and you take this opportunity to clear your buying position with no loss, therefore contributing the price to reverse down on 10.

THE SUPPORT/RESISTANCE OVERLAP STRATEGY: GC G8 ON JAN 2018

ADAPTED OPTION STRATEGY: BULL CALL SPREAD

As the upside potential is limited by the 1360 target, a Bull Call spread allows you to lower the cost of the strategy (in comparison to a straight long call) by selling a call out of the money. As a result, the strategy consists of the simultaneous purchase of a call with a strike at 1340 and selling a call with a Strike at 1360

 

BULL CALL SPREAD: Leg 1
Trading Symbol OG G8
Option Type CALL
Option Strategy LONG
Strike 1340.00
BULL CALL SPREAD: Leg 2
Trading Symbol OG G8
Option Type CALL
Option Strategy SHORT
Strike 1360.00
Trading Symbol OG G8
Strategy LONG
Entry Point 1330.70
Target 1360.00
Stop Loss 1321.00
Contract Expiry Feb 2018

POTENTIAL GAIN PER CONTRACT
A target of 1360 is calculated by the measured move (Shown by the arrow in the chart).

POTENTIAL DOWNSIDE PER CONTRACT
Once prices broke below 1321, the position should be closed with limited loss.

 

ACTUAL OUTCOME

The Support/Resistance Overlap Happening Now

Soybean Meal: ZN

British Pound: 6B

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