In trading, patience often pays off. As much as I wanted to exit this trade yesterday, I clenched my teeth and held, for the reasons I discussed in the previous post. Today I was glad I did.
We bounced off the 8ema and 50sma and closed above both. At the close, we formed a Bullish Harami candlestick pattern. Although, we also just formed a Bearish pattern as of the Close yesterday. So while we're moving sideways on mid-range stochastics we probably shouldn't give much weight to these candle patterns. But still, its reassuring to get a Bullish pattern.
Also, we seem to be forming a Bullish Flag formation. See the 2 thin white downward angled line segments. If we are, it would be relatively short in length to break out of a Flag pattern on the next trading day. So if we're in a Flag pattern and we have a few more days to complete it, then we may make some more lower lows.
Today's price action is definitely telling us to stay in this trade. But today is a Friday which means we have to sit out 2 calendar days, and we may get a few more down days next week. So it makes sense to take some kind of hedge. To that end, I got a ZC corn futures Jul 600 Put option for 3 1/4. The cost is 3 1/4 * $50/pt = $162.50. Our Stop on our long corn trade is 602. But Stops don't work when the market is closed. In this situation you want an option. Since we were willing to use a Stop at 602, the option Strike can be just under that to handle a catastrophic drop in price.
Why corn? Well, we also have a long position in corn as well as this long position in wheat. In both trades we're using the mini-contract, which is $10/pt rather than $50/pt for the full contract. Since the price action on corn and wheat have been extremely similar from the beginning of this trade, and since the value per point is 5x larger for the option than the mini futures contract, I figured the one option for corn will also give us a hedge against a severe drop in wheat.
No comments:
Post a Comment