At the grains market open Sunday night 20:00 ET you can see on the Daily chart above, on the bottom, we opened with a gap up. When you gap up its a very Bullish indication. Unless the market is overbought and you just witnessed a top, followed by a new down trend.
Stochastics are not yet in the overbought range (>80), but we could see a refill of the gap anyway, followed by a bounce and resumption to the upside. So, rather than sell off the hedge immediately in a giddy sense of euphoria, I went down to the 3 minute chart and looked for a clue which way we were going. If we started down, I would have held all the positions, then sold off the hedge at the top of the flag trend line, and waited for the futures to start back up.
The 3 minute chart is the top chart above. Notice we had a nice drive upward, then a Doji candle formed. There's a rule of thumb that how the next candle starts moving away from a Doji then that is the direction the new candle will continue. The Doji represents indecision, and a decision has been made. Go with it.
So when I saw the candle after the Doji started moving up in earnest, I sold the ZC Jul 600 Put for 2 1/8. But before that I checked the Wheat chart also, because this hedge protected that position also. Our Wheat trade also gapped up at the open.
We opened strongly Bullish after the weekend, so I'm holding the position overnight. We might get a pull back to the Flag and fill the gap. If we do, I'd expect a reversal back to the upside. Overnight trading can be somewhat counter-trend so I may not like what I see in the morning. But the current plan is to hold the position until the day session opens at 9:30am ET and see what happens after that.
Loss from the protective hedge we took Friday is:
ZC Jul 600 Put Bought for 3 1/4, sold for 2 1/8, which is -1 1/8 pts x $50/pt = $-56.25
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