I alluded to this move in yesterday’s daily Commodity wrap and it looks like the move anticipated is underway. As of this post futures are trading lower by 0.74% and under their 50 day SMA (dark blue line) and 34 day EMA (orange line). I am operating under the influence that an interim high was established last week at the 61.8% Fibonacci level as all trades above 1.5400 in September futures have been rejected. See stochastics on the chart below have started to roll over from overbought levels. The 38.2% Fibonacci retracement (the lower jagged line) and the 20 day MA (light blue line) come in around the same level at $1.5170. A trade below that pivot point in the coming sessions I would be looking to book profits.
As for strategy…
I have two suggested plays here depending on traders account size, risk tolerance and if they trade future and/or options:
- Get short September futures and sell an out of the money put option 1:1. As of this post futures are at $1.5244 and $1.52 strikes are trading at just over $1,000 per with a delta of 46%. You should make about half of the underlying futures move and have $1,000 cushion.
- Back ratio spread selling nearby and buying multiple lower strikes. Yesterday for some clients we sold (1) $1.53 and bought (2) $1.52 and bought (1) $1.49. A positive delta of 50% and the trade cost $800 plus fees and transactions costs. Remember on trades like this the fees are elevated because you are trading multiple legs.
As for the docket we have a full calendar the remainder of the week…here are the highlights:
FOMC today and tomorrow, BoE and ECB on Thursday in addition to Q2 US GDP, and then rounding out the week NFP # on Friday. A busy reporting week can cause increased volatility so stay alert.