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futuresmag.com

October 2009

Crude

Correlations
Want to know where crude oil is going? Watch the U.S. dollar

US $6.95 CAN $8.95

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All Brokers are Not Created Equal
Consider ways to minimize your trading costs
US Commission Rates Comparison
100 Shares $7.99 1 $8.00 2 $1.00 3 $9.95 4 $8.95 7 $9.99 $5.00 1 E-mini S&P 500 1 Stock Future Option Plus Plus $2.99 exchange $8.74 1 regulatory fees fees N/A $8.75 2 $2.40 3 $1.00 3 $6.99 6 $12.95 5 N/A $9.70 N/A $10.74 $3.50 $2.95

E-Trade Fidelity Interactive Brokers* optionsXpress Schwab TD Ameritrade thinkorswim

Commission Comparison as of 09/01/2009. Services vary by firm. Data is for U.S. equities, stock options and futures.

*Lower commission rates for larger volumes and comparable rates worldwide.

Interactive Brokers
US Stocks (cents per 100 shares) US Options (cents per contract)

Industry

IB Advantage

31 125

-11 65

42 60

Net Dollar Price Improvement [A] vs. National Best Bid/Offer
Significantly better than the industry as a whole [B] for second half 2008.

Source: Transaction Auditing Group, Inc. (TAG), a third-party provider of transaction analysis

US Margin Loan Rates Comparison
E-Trade Fidelity Interactive Brokers optionsXpress Schwab TD Ameritrade thinkorswim $25K 7.49% 7.575% 1.64% 6.25% 8.00% 8.50% 7.70% $200K 5.99% 6.575% 1.14% 5.00% 6.875% 7.25% 7.70%** $1.5M 3.74% 3.750% 0.64% 4.00% 6.25% 6.25% 7.70%**
**Negotiable

Margin Rate Comparison as of 09/01/2009. Services vary by firm.

Interactive Brokers
The Professional’s Gateway to the World’s Markets

www.interactivebrokers.com

Interactive Brokers LLC is a member of NYSE, FINRA, SIPC — Supporting documentation for any claims and statistical information will be provided upon request. [1] E-Trade - 150-1,499 trades per quarter. [2] Fidelity Gold Account - $1 million or more in assets or $25,000 in assets and 120 trades per year. [3] IB - Accounts generating commissions less than $10 per month (with account equity of $2,000 or more) will be assessed the difference as a monthly activity fee. [4] optionsXpress - minimum 9 stock trades per quarter. [5] optionsXpress - minimum 35 option trades per quarter. [6] optionsXpress - eMini – between 1 - 40 contracts per month. [7] Schwab - 120 trades+ per year or more than $1 million in household balance. [A] Net $ Improvement per Share Definition: ((# of Price Improved Shares * Price Improvement Amount) - (# of Price Dis-improved Shares*Price Dis-improvement Amount)) Total Number of Executed Shares. [B] According to TAG for US stocks (42 cents per 100 shares better), the analysis included all market orders of 100 shares or more, up to 10,000 shares from July - December 2008. The analysis for US options (60 cents per contract better) included all market orders with order sizes of 1 to 50 contracts from July- December 2008. 09IB09-209

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*CBOE data and Bloomberg, cboe.com. CBOE®, Chicago Board Options Exchange ®, CBOE Volatility Index ® and VIX® are registered trademarks of Chicago Board Options Exchange, Incorporated (CBOE). CFE® is a registered trademark and CBOE Futures Exchange is a servicemark of CBOE Futures Exchange, LLC (CFE). S&P 500 ® is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for use by CBOE. Copyright © 2009 CBOE Futures Exchange, LLC. All rights reserved.

software. Contents Continued.com News for investors in metals and commodity products and businesses ON THE WEB THIS MONTH » TRADING TECHNIQUES: Strangling money out of metals » FUTURES 101: Using momentum analysis to predict price change » BOOK REVIEWS: “Forex Patterns and Probabilities: Trading Strategies for Trending and Range-Bound Markets” By Ed Ponsi Author Brandon Jones reviews a guide to trading strategies for the beginning forex trader.Contents OC T OB ER 2009 VO L U M E XXXVI I I N UMBE R 1 0 cover story Energy Outlook: 24 Energy outlook: Crude correlations and what comes next By Christine Birkner Crude correlations and what comes next Crude oil is back on the move and traders should look to equity markets and the U. and more BuyTheRumorSellTheFact. dollar to determine where it’s headed next. FEATURES EQUITY TRADING TECHNIQUES 30 Short volatility trading in extreme markets By Sergey Izraylevich and Vadim Tsudikman TRADING TECHNIQUES 33 Getting your fill: Option spreads By Paul Brittain and Rich Roscelli 36 Learning to trade: It’s academic We examine volatility selling strategies with a discussion of the criteria that work. » MARKET WATCH: Daily analysis on all the sectors you trade Letters To The Editor » Dateline » Quarterly Funds Review » New For Traders » Software & Book Reviews » Hedge Fund Listing 4 FUTURES | October 2009 .com.S. Hedge Fund Listing Latest hedge fund performance numbers Dateline Calendar Trading dates and economic reports Coming Events Industry conferences for October and November New for Traders Exchange offerings. Here’s a look at where crude and metals are headed through the end of 2009. “The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist” By Brett N. educational resources. Here are some ways to enter spread orders that can shave ticks on execution and give you an edge. McNew and Tup Ingram We discuss a program that teaches the girth model and how the model can be used to manage a currency portfolio.com today. visit futuresmag. For additional information.com Want to know more? Go online and check out our web-exclusive articles. Steenbarger Brandon Jones reviews a book on the importance of how traders act and react to the markets. charts and e-newsletters at futuresmag. By Leslie K. page 6 Exclusively on futuresmag.com Futures’ editorial blog Resource Investor. resources. forex and options products.

given or in any manner endorsed by TradeStation Securities. or low risk tolerance.“Right now. the brokerage dedicated to providing the tools.” Now more than ever. Internet traffic. . System access and trade placement and execution may be delayed or fail due to market volatility and volume. Active trading is generally not appropriate for someone of limited resources. All rights reserved. quote delays. TM TM Member NYSE.. comprehensive testing and research. you want to ground every trade in precise. Past performance. an affiliate of TradeStation Securities. Leader in Rule-Based Trading tag line based on industry awards and reviews. education and support that rule-based strategy traders need. Inc. system and software errors. recommendation or strategy. Inc. is no guarantee of future performance or success. is made. whether actual or indicated by historical tests of strategies. or any of its affiliates. limited investment or trading experience. Find out about our special offer for new accounts. Inc. All proprietary technology in TradeStation is owned by TradeStation Technologies. FINRA. ©2009 TradeStation Securities. or any type of trading or investment advice. securities derivatives or futures products of any kind. outages and other factors. the last thing I want to do is cross my fingers. Inc. NFA and SIPC IMPORTANT INFORMATION: No offer or solicitation to buy or sell securities. Serious traders choose TradeStation.

Collins Key to any trading survival guide is the ability to build and automate a trading system.Contents continued group editorial director Ginger Szala DEPARTMENTS 8 Editor’s Note Wasted energy hands• CFTC changes COT report• No more maker taker?• Swift action on no-action letters• Chartview 18 Options Strategy Executing a butterfly put spread 10 Trendlines Regulators hold managing editor Daniel P. 44 How to build automated systems By Joe Gelet TECHNOLOGY & TRADING 48 Artificial intelligence: A comeback story By Murray A.uk 40 Managing and profiting on volatility Volatility has threatened traders’ survival in the past year. 60076-7822 Circulation Service phone: 1-(800) 458-1734 (U.O. Ruggiero Jr. Holter Murray A. 1938-2008 cio founder 6 FUTURES | October 2009 . particularly in the world of forex.deriv@tives. Nasdaq 100. Box 2162 Skokie.com or (212) 221-9595. visit futuresmag. euro 57 Ad Index 58 Trader Profile Matthews’ new program minty fresh Chris Casey phone: (312) 846-4606 fax: (312) 846-4638 e-mail: ccasey@futuresmag.com.S. it is a reasonable addition to any trader’s toolbox.com Jean Berger phone: (312) 846-4626 fax: (312) 846-4638 e-mail: jberger@futuresmag. Flynn president & ceo coo/cfo senior vp & managing director. 52 Hot New CTAs: Two programs to watch Emerging managers are looking to provide diversification in styles. Ill.com national sales manager east sales manager west & classified sales manager FEATURES Trader’s Survival Guide By Dan Keegan international sales manager Carolyn Hicks London. Ill. fax: (312) 846-4638 futures circulation offices P. art director Jeremy Werling Tom Duggan phone: (312) 651-0309 fax: (312) 846-4638 e-mail: tduggan@futuresmag.com 20 Forex Trader Forex fundamentals are multidimensional group publisher 13 Trading Places O’Connor named CTO at DTCC 22 Market Watch How aggressively will the Fed tighten? 14 Managed Money Review 16 Hot Commodities Corn. For additional information. Reilly. Here are some tools for managing volatility risk. England phone: (44) 1843 280 728 e-mail: carolyn. please contact PARS International at reprints@parsintl. only) phone: (847) 763-9252 (outside of U.) fax: (847) 763-9587 Calls accepted 8:00 am-4:30 pm CST e-mail: futures@halldata. Goodenough Thomas M. media division John Whelan Chris Moschovitis William F. Ruggiero. Here are two managers to keep an eye on in the future.S. Riverside Plaza • Suite 620 Chicago.co. 60606 phone: (312) 846-4600. office manager & sales assistant Nicole Russell phone: (312) 846-4600 fax: (312) 846-4638 advertising coordinator Maggie Vest phone: (859) 692-2260 fax: (859) 283-4450 group marketing director Amanda Schuster group technology director Dave Ginn director of production Georgia Barry director of manufacturing Steve Johnston futures magazine group office 222 S. While artificial intelligence is not a magic bullet. page 58 Andrew L. Jr. Collins associate editor Christine Birkner editor at large Steve Zwick contributing editors James T. For reprints of 500 copies or more and e-prints of FUTURES articles.com international subscription reseller Ken Masunaga phone: (81) 03-3664-9271 (Japanese language version available) MANAGED MONEY By Daniel P.

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S. 11 Davis Drive. automobile industry continued to build gas guzzler cars that held the United States hostage to the whims of oil producing countries. Belmont. – All other areas. DBA Summit Business Media. Surely these congressmen must understand that these industries — for a fact — impacted our economy. dollars by international money order only. No part of this magazine may be reproduced in any form without consent. but with their letter that single-handedly puts the economy’s failure on the back of the lowly oil speculator. London. but the publisher disclaims responsibility for facts or opinions contained herein. having covered this business for years. As you’ll see in our energy outlook (“Crude correlations and what comes next. analysis and strategies for futures. Apparently Amaranth’s doings weren’t a red flag. PO Box 2162.S.95 in Canada. $121 per year. KY 41018-3164. When I asked my friend the oil speculator why there weren’t limits. that is. and potentially into next year. Today a wire story noted that several congressmen sent Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler a letter “strongly” urging him to “act quickly to adopt new rules that prevent financial speculators from wreaking havoc on our economy.. and every effort is made to assure its accuracy. Skokie. All orders from outside the United States must be paid in U. Periodical postage paid at Covington. P. IL. I admit to thinking all commodity futures contracts had position limits. he responded with a shrug and said the market was so big they didn’t think limits would ever be needed.S. or e-mail: reprints@parsintl. Canada. No responsibility is assumed for unsolicited material. Futures (ISSN 0746-2468) is published monthly by The National Underwriter Co. in their words. CONTRIBUTORS: Return postage must accompany unsolicited manuscripts. CPC IPM Product Sales Agreement No. crude oil futures were just coming off their $147 per barrel highs. prices probably will be flat to lower for the near term. 300 N. MICROFILMS and MICROFICHE of all issues of FUTURES are available from University Microfilms Inc. swaps dealers and proprietary traders with limited exemptions for legitimate commercial hedgers with physical holdings” and “strong transparency requirements on all ‘over-the-counter’ (OTC) markets and requiring all OTC contracts to clear through a CFTC-regulated [sic] by invoking the commission’s emergency authority to events that prevent ‘the market from A accurately reflecting the forces of supply and demand. The institutional greed on Wall Street is well documented and almost collapsed the financial system. 1254545. oil speculators wave their magic wands and eliminate the impact that supply and demand has on prices.95 in the United States. 60076-7822. despite resistance from the OTC market players. As I write this. alternative fuels are almost an afterthought as companies and governments (i. $78. page 24). I don’t find their requests so off the charts. oil is hovering around $70 a barrel. Information Access Co. photographs and drawings if return is desired. Subscriptions: Visit our website at futuresmag. Zeeb Ave.O. Allow four weeks completion of changes. Erlanger.e. Printed in the USA. This could change if a global economic recovery kicks in and energy demand grows. The Neanderthal U. Unless. COPYRIGHT © 2009 by The National Underwriter Company. two years. Ann Arbor. the congressmen support. and the election is over. Surely these gentlemen understand that industries in their states truly wreaked havoc on our economy and got government handouts despite it. It surprised me that energies didn’t.com for a copy of our writer’s guidelines.com to order or change your subscription or contact our subscription house at futures@halldata. BP. CA 94002. Stupak from Michigan. are one year..com..com C U S T O M E R S E R V I C E C E N T E R Want to sound off on a Futures article? Send your comments or questions to gszala@futuresmag.S. The full text of FUTURES: News. “strict aggregate position limits across all energy products and markets for all index traders. of course.com. believes the information contained in articles appearing in FUTURES is reliable. we were headed into a presidential election and oil speculators were being blamed for everything short of global warming. Whether oil speculators had much or anything to do with taking crude oil to new highs even the regulator still hasn’t determined — and may never. MI 48106. But one thing hasn’t changed: oil speculators still are serving as the whipping boy for high energy prices and more. Box 25058.: (847) 763-9252]. hard position limits.” by Associate Editor Christine Birkner. 8 FUTURES | October 2009 . International online version also available.com or call (800) 458-1734 [Outside U. Single copies $6. All rights reserved. Subscriber rates in the United States. Canadian Mail Distributor information: EMI.Wasted energy EDITOR’S NOTE round this time last year. $8. What a difference a year makes. $128. Reprints: Orders for 500 or more or e-prints can be made through Pars International at (212) 221-9595. My disdain for these congressmen is not with them supporting actions that pretty much are going to be put in place anyway.. call (800) 458-1734 or 847-763-9252 (outside U. Article submissions: E-mail cbirkner@futuresmag. Postmaster: Send address changes to Futures. followed by 18 other congress people.’” The two congressmen leading this charge are Maurice Hinchey (D-NY) and Bart Stupak (D-Mich). Brazil) find huge new crude oil deposits. ON N6C 6A8. Hinchey is from New York. options and stock traders also is available in the electronic versions of the Business Periodicals Index. Futures Magazine Inc. Frankly. 5081 Olympic Blvd. companies were scrambling to develop or use alternative fuels.” Specifically. E-mail me at gszala@futuresmag.) for details. DBA Summit Business Media. KY and additional mailing offices. Even the requests for strong transparency in all OTC markets and for requiring clearing through an exchange clearinghouse aren’t that bold and likely will be adopted.

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you might think that the agencies have very similar missions. Nybo says that the biggest obstacles to the harmonization process are political.” If this doesn’t happen. clearing and portfolio margining. “The SEC doesn’t want to be in a situation where they’re jumping in and making the new regulatory world look more in their favor. NEW OUTLOOK The CFTC began providing more detail in its Commitment of Traders report this September. trying to prevent a draconian regulatory overhaul. but others would point out serious differences. trends and insights for traders IT’S COMPLICATED… Trendlines Regulators hold hands To prevent what one exchange leader said was change that could do “more harm than good. The old commercial category is now producer/merchant/processor/ user.” He mentioned that inconsistencies in regulation “have led to conflicts between the agencies over new products. says futures exchanges will retain principles-based regulation.” says Andy Nybo. In his testimony. 700 600 Thousands Week of Sept 4 Nymex WTI Nymex WTI ICE WTI ICE WTI 500 400 300 200 100 0 prod/mer/ proc/user Source: CFTC Swap dealers Managed money Other reportables Commercial Noncommercial Non reportables New COT Old COT oversight of all derivatives products.” says former CFTC Chairman Philip Short Short Short Short Short Short 10 FUTURES | October 2009 Short Long Long Long Long Long Long Long .” He notes that regulatory change will force firms to remain vigilant with respect to how they can operate in a new environment. the agencies must complete a blueprint for “harmonization. “A more flexible principles-based approach will allow innovation in new products. were vigorous in what should and should not be done. noting that the agencies will add efficiencies in the product approval process. Industry leaders. adding that the agencies need to sort out the uncertainties that still exist in over the counter (OTC) market regulation. 30. and legal and compliance expenses will expand as firms adapt to the evolving regulatory environment.” He also reiterated the point that inappropriate levels of regulation could push derivative market participants overseas.” Several panelists cited past regulatory stalemates that resulted in delays for the introduction of new products such as credit default options and options on gold and silver ETFs. should be different.News. The report for the first week of September shows a stark difference from the traditional report in open interest levels.” he says. by necessity. Many swap dealers that represent speculative non-commercial interest would wind up in the commercial category of the old report because they are technically hedgers. Listening to the two heads of the prospective regulators and those pushing a merger of the agencies. Paul Zubulake. senior analyst at Aite Group.” he says.” Exchange heads called for a focus towards the CFTC’s principles-based approach vs. Chicago Board Options Exchange Chairman and CEO Bill Brodsky in his testimony said “we support the Administration’s proposal that the SEC give serious consideration to shifting closer to a principles-based approach for exchanges and clearing organizations under its jurisdiction. and swap dealers. The delays associated with the lengthy review process inherent in a rules-based approach inhibit innovation. “The securities and futures markets provide radically different services and that fact must never be forgotten. the SEC’s rules-based approach to regulation.” industry leaders testified before commissioners of the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) their views on how the financial regulatory landscape should be altered.” Options Clearing Corporation Chairman Wayne Luthringshausen called for “combining the functions of the SEC and CFTC under a new principles-based statute to ensure holistic CHARTVIEW: SAME DATA. “They’re headed in the right direction but the OTC market situation is still up in the air. managed money and other reportables are broken out in separate categories. “We believe that the harmonization discussion must take account of the basic fact that these markets are highly dissimilar in many critical aspects and that the regulatory framework. By Sept. the Financial Services Oversight Commission will take over. head of derivatives at Tabb Group. CME Group CEO Craig Donohue warned that “merger of the existing regulatory structures into a single set of one-size-fits-all rules administered by separate agencies will do substantially more harm than good.” Donohue said. adding that “harmonization may be interpreted to mean abandoning the principles-based regulation of the Commodity Futures Modernization Act. “Melding the two organizations and creating an efficient management structure are one challenge but the bigger challenge is sorting out the various committee oversight issues that will certainly become part of the debate over harmonization.

while the CFTC must not prevent people from hedging.” Whether taker/maker will become the new maker/taker is unknown. “Maker taker was the way to go. They were used to being paid. including major agriculture. if they weren’t there to begin with.” Grigoletto says. all the rage a few years ago. gross short. Using quarter-ending dates. not paying [based on payment for order flow]. The agency will publish additional COT data for 22 contract markets. It appears to be working on Arca. By Christine Birkner ment data details the notional values and the equivalent number of futures contracts for all U. In 2007.” Grigoletto says the practice of flashing orders (allowing an exchange’s market makers to match an order before routing it to another exchange) may have hurt the maker taker model. markets with more than $500 million of reported net notional value in any one quarter. commercial and noncommercial.com | October 2009 11 . “[Taker maker] is a form of payment for order flow. We thought market makers would be incented to make better prices and that customers would get better prices.” Of maker taker.” he says. The index invest- By Daniel P. Collins futuresmag. the data shows the gross long. but in the options world it is easy to know if something is successful — the other exchanges will copy it. according to Mark Long of the OptionsInsider. energy and metals markets and is working to create a new COT for all of the financial markets. may have reached a plateau. “I don’t think it is dead but I think it has plateaued for now. We would never try and hide that fact. The CFTC will continue to release the traditional COT reports and supplemental CIT reports for a transition period until the end of 2009.McBride Johnson. While the old COT reports broke traders into two categories. the Boston Options Exchange (BOX) pulled the plug on its maker taker pricing on all Penny Pilot options classes a few weeks after bowing to convention — albeit in a non-conventional way — by creating a payment for order flow model in the form of a taker maker model. “We have been fighting payment for order flow for years but it seems to have the tacit blessing of the SEC.” Longo says. adding that understanding how different the two agencies’ missions are will be the biggest challenge in the harmonization process. The SEC must give everyone comparable information to maintain a level investment field. the CFTC began supplying additional data. swap dealers. BOX never really gained traction with it. the new reports break the data into four categories: producer/merchant/processor/user. and net notional values with the corresponding equivalent number of futures contracts held across all contract TAKE THAT No more maker taker? In late August. People were saying this is what was going to take over. Longo says. Of the taker maker model. an exchange will pay a credit to the provider of liquidity and charge the taker of liquidity. But if exposure was eliminated. [but] it is transparent in that it is available for everyone and it is instantaneous.” Grigoletto says. breaking out index traders in its supplemental CIT report. perhaps there would be a better chance for getting an order from an outbound linkage because the way exposure is set up on most exchanges is. A lot of order routing firms have decided to configure their order router so that maker taker exchanges get it last. “It didn’t work because in the maker taker model you are giving the market maker a credit of 30¢ but he is giving up a dollar on the edge so you don’t have a whole lot of people willing to do that. (In the maker taker model. says. they would have to route to the other market immediately. they give the market a chance to match the away price. The new index investment reports will update data from the CFTC’s September 2008 report on swap dealers and index traders. “If flash was eliminated.) Maker taker. In reality it didn’t happen as well as we though it would. 4 and announced it would begin releasing additional data on swap dealers and index traders in the futures markets on a quarterly basis.” Alan Grigoletto. managed money and other reportables (see Chartview). but that only covered 12 agricultural commodities and did not include energies.” the CFTC began disaggregating data in its weekly Commitments of Traders (COT) reports on Sept. “It just didn’t work for us. no star chamber deciding who gets paid.S. he says it is too early to tell after only one month. Brokerage firms didn’t like taker fees. if they don’t have the best price. CFTC changes COT report BREAKING IT DOWN In what it called an effort to “increase transparency and promote market integrity. I don’t see it growing. There is not a collection process … there is no pool like the exchanges have set up. pursuing their own statutory missions. so it stands. “They should remain separate. SVP-business development & marketing at BOX. But of course Arca also has a payment for order flow model. The CFTC will produce the same disaggregated data on all of the remaining commodity markets that they currently publish COT data for. “We have seen a lot of pushback on the maker taker model.

“You have new kinds of traders that didn’t exist before that [have] really changed the fingerprint of the data and breaking those out from the regular producers and keeping that commercial category in tact will let us continue to track the markets. Henry Jarecki. 12 FUTURES | October 2009 . individual trader and trading advisor. then it won’t be as easy for people to [manipulate it]. calls the reports “a godsend to traders as they allow for a deeper analysis of market players.” he says.” says Floyd Upperman. The old data will still be relevant since we’ll have clean commercial data.com Visit ResourceInvestor.” The release noted that “the withdrawal of these no-action positions is very specific and limited and does not affect any other no-action or regulatory positions taken by the CFTC.” Upperman says that evolutions in trading. have made changes to the COT report necessary.” “We should be able to see so much more.Trendlines continued months on the relevant dates. “Any increased insight into who’s doing business on the futures exchanges is going to be good for small speculators. such as the introduction of ETFs and the participation of pension funds in commodities trading. a private trader and expert on using COT data. but we probably will have to come up with new measurement tools and new approaches to handle this new data. analysis and opinion. Larry Williams.” By Daniel P. Collins Swift action on no-action letters Less than three weeks after holding ResourceInvestor. CFTC Chairman Gary Gensler stated in the release. participated in the CFTC hearings and argued against the idea that index funds unduly influenced market prices. “The reports will help police the market better and help create a better playing field. but now we’ll be able to track these new players that have emerged in the last 10 years — the index traders and spread dealers.” he says. If everybody has access to the data. By Christine Birkner REGULATORY SENSITIVITY? hearings on energy position limits and hedge exemptions. “I believe that position limits should be consistently applied and vigorously enforced. the CFTC withdrew two no-action letters that provided relief from Federal agricultural speculative position limits for DB Commodity Services LLC and Gresham Investment Management (GIM) whose founder.com for the latest commodity producer’s news.

complinamed managing direcsales & client relationance. Riverside Plaza. Previously he served as managing director.@cbXcb]gfY[i`UhYXZcf h\YWcbXiWhcZ]bjYghaYbhVig]bYgg]bh\YI?Vmh\Y:]bUbW]U`GYfj]WYg5ih\cf]hm"HfUX]b[]baUf[]bZcfY][bYlW\Ub[YWUbVY f]g_m"H\YigYcZ`YjYfU[Y]bZcfY][bYlW\Ub[YhfUX]b[WUb`YUXhc`Uf[Y`cggYgUgkY``Ug`Uf[Y[U]bg"AUf_YhgfYZYffYXhc]bh\]g diV`]WUh]cbWUbVY\][\`mjc`Uh]`Y":cf[YbYfU`]bZcfaUh]cbfY[UfX]b[h\YbUhifYUbXf]g_gcZh\YdfcdcgYXhfUbgUWh]cbUbXhmdYg cZÑ bUbW]U`]bghfiaYbhgd`YUgY[chckkk"[`cVU`aUf_Yhg"XV"Wca#f]g_X]gW`cgifYg"H<=GDFC8I7HA5MBCH695DDFCDF=5H9 :CF 5@@ =BJ9GHCFG" 69:CF9 9BH9F=B. Demetrios N. He previously served as chief executive officer of CMA. Ill.G::hf]U` G[XcbjXebYg[Xjbe_WÇfAb$\a9KTglbheÐ aZXeg\cf" k]h\Uj]fhiU` tors at OptionsCity. Previously ridget E. Lehman Brothers Holding. Jennifer Wenthen was promoted to chief financial officer at Horizon Cash Management. Previously he YW[m#Xdb$. Bridget brings the global experience and record of success that we believe will continue to differentiate DTCC in the future. O’Connor was president for North American she was first vice president. n @YjYfU[YXhfUX]b[!ZfcaUg`ckUg%aUf[]b tion in Asia for Citi.fYU`h]aYW\Ufhg -++").” said William Aimetti. Previously she was vice derivatives markets analyst. Heather Halloran joined ACTIV Trust & Clearing Corporation Deanna L. she was a controller at PCS. l]ZcZkZg!l]ZgZkZgl^i]YW. n HfUbgdUfYbhdf]WYgk]h\gdfYUXgUg`ckUg&d]dg )$.Trading Places BY CH R I S T I N E B I RKN E R B O’Connor named CTO at DTCC sales.@cbXcb]bUWWcfXUbWYk]h\Uddfcdf]UhY`cWU``Y[]g`Uh]cbUbXfY[i`Uh]cb"8YihgW\Y6Ub_5. Joe Bernier was named director of margin at Scottrade.com | October 2009 13 . 222 S. BRIDGET E. 60606. over-the-counter products & services at CME Group. =BHC H<=G DFC8I7H MCI G<CI@8 H5?9 GH9DG HC 9BGIF9 H<5H MCI IB89FGH5B8 5B8 <5J9 A589 5B =B89D9B89BH 5GG9GGA9BH C: H<9 5DDFCDF=5H9B9GG C: H<9 DFC8I7H" E-mail: cbirkner@futuresmag.M# Neal Brady joined the board of direc:cfU.. Laurent Paulhac was named managing director. agricultural commodities at CME Group. “Bridget’s leadership in developing and maintaining high-quality infrastructure systems and business continuity programs on Wall Street is both well known and highly regarded. Sherry Isenberg joined TwoFour as managing director of North American Send news of personnel moves to: Futures. Before joining Horizon. for Bank of America/Merrill tor and chief technolship management at Fiserv Lynch Commodities. LCC. Timothy Andriesen was named managing director. ogy officer at the Depository Corporation. COO and president of DTCC. in a statement. (DTCC). Suite 620 Chicago."('(. O’CONNOR Emery LLP as an energy and Inc."H\YUVcjY]bZcfaUh]cb\UgVYYbUddfcjYXUbX#cfWcaaib]WUhYXVm8YihgW\Y 6Ub_5. and nPhase. Skalkotos was promoted to senior vice president of global IgVYZXjggZcX^Zhdca^cZl^i]XdcÒ YZcXZ corporate services at Nasdaq OMX. Inc. agribusiness for National Australia Bank/nabCapital.MÄIgVYZl^i]i]ZWZhi# worked in energy marketing for JP Morgan in Singapore.$$$ n :ibXg\Y`Xk]h\8YihgW\Y6Ub_!h\Ykcf`XÈg`Uf[Ygh`]ei]X]hmdfcj]XYf Ted Huang was named director in 7cbhUWhig n 9lW`ig]jYUWWYgghc8YihgW\Y6Ub_ÈgUkUfXk]bb]b[fYgYUfW\ hcXUm commodities marketing and originan HfUXYX]fYWh`mZfcadckYfZi`. Fax: (312) 846-4638 Attn: Christine Birkner JchYXBc%]b9ifcacbYmdc``&$$)Ã&$$. Inc. Newcomb Financial as a senior sales executive.JI YW.com futuresmag. Previously she was joined McDermott Will & Previously she was with Interactive chief information officer for Data Corporation.

. . . . . (641) 472-3456 2009 results (through August 31) Number reporting: 40 Average performance for the year: -7. . . . . . .27% 3. .50%. . . . . . . . . . . . . . . . . . . . . . . . Series B . 32. . The program trades CME Group products exclusively. . 9. . . . . . . . . . . . 10.31% Diversified Traders . . . . . .0. . . . . . . . . Persistent Cap Mgmt (Perseverance 2X) . . . .. . . . . . . . . .-89. .17%. .Multiple Advisors . . . .58% Fund Trading advisor(s) August Return Number reporting: 41 Average performance for the month: -1. . . . .P. .83% SB AAA Energy Fund LP . . . Fairfield. .83%. . . . . . . . . . . . . . -3.27% Barclay Sub-Indexes: Agricultural Traders . . .03% SB Warrington Fund .6. . . . . . . . . . . .97% Athena Guaranteed Futures (Series3) . .65% +9. . . . . . . . .03% .72%. .Multiple managers . . . . . . . . . .03% Citigroup AAA Energy Fund L. .22% FTC Futures Fund Classic* . . .W. .FTC Asset Mgmt. .24% Quadriga Superfund. . . . . . . . . . . . . . . . . . . . . . .+0. . -0. Webster says that program has produced a compound annual return of 18% with an annualized standard deviation of about 17. . . . . . . . .75% 5. .Multiple Advisors .53% Quadriga Superfund. . . . -1. . . . . . . 11. . . . . . . . . . . . . Pomeranz & Prtnr. . . .75% Worst performers in 2009 Quadriga Superfund. . .60%. . . . . . . . . . . . . Abbey Global LP. . .73%. . . . 2. . . . . (Curr. . . “We are seeing a lot of interest so far and we are very hopeful this product actually provides access to a fairly large market segment that is looking for a product like this. . .3. . . .97% -12. . -15. . . . . . . . . .27% . . . . . . .Multiple Advisors . . .19% SB Bristol Energy Fund LP.-89. . . . . .05% -1. . Mgmt (Strat. . . . . . . . . . +0. commissions should come in around 4% per year. . . . . . .06% SB Tidewater Futures Fund LP . . . . . . . . . . . .19% FTC Futures Fund Dynamic*. . . . . . . . . 9. . . -0. . . . . . .91% 2. L. . . . . . . . .89%. . . . . 16. . . . .Multiple Advisors . . . -19. .TMS Capital Management. . -92. . . .51% Systematic Traders . . .06% . . . . . . . 15. . . . -4. . . . . . .28% Marathon System Financial Portfolio.55% Financials and Metals Traders . . . . . . Henry. . Series B . . . CO L L I N S JWH offers new Vision For hedge fund performance and low minimum CTAs go to… FuturesMag. . . . . . . . . . .25% +7. . . . . . . . It is up 1% through August trading proprietary accounts.74% Less than $10 million under management 1.45% . . . . . . . -4.22% Worst performers in August Quadriga Superfund. . . .+0. . . . -7. . . .09% .22% SB Westport Futures Fund LP. . . Series A . . .0. .” says Ken Webster president of JWH. . .” Webster says. . . . . . . .P. interest rates. . . . . . . . . . . . . . . . . The program has a minimum investment of $250. . . . . . . . . .66% Marathon Currency & Financials (CFE) Portfolio.+1. . . .” Rothman says. . -3. . . . . . . . .” JWH will get its standard 2% management fee and 20% incentive fee and Vision will cap commissions at $50 per roundturn including all fees. . .92% Based on estimates of the composite of all accounts under management. “We wanted to make sure that fee structure on commission came in under 5%. . Friedberg Comm. . .AAA Capital Management. . . .56% -7. . . . . . . . . . . . . . . . . . . . -37.AAA Capital Management.03% . . . . . . . . . . . . .SandRidge Capital Management. . . . . . . . . . . . . . . . . . . . . .TMS Capital Management. . . . . -1. . -9.69% Marathon Plus Portfolio . CKP Finance Associates (Masters) . 9. . 56.J.). . . . . . . . . .. . . . .60% Funds up: 19 Down: 22 Unchanged: 0 YTD July’s top CTAs July YTD Barclay CTA Index . . . 10. .20% Funds up: 7 Down: 33 Unchanged: 0 Trading advisor(s) August Return Top performers in 2009 Fund Triad Trading Fund LP. . . . .04%. . . . .5) . . . .43% Discretionary Traders . . -2. . . . 9. . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . .0. . . . .18% 3. . . .53% SB Westport Futures Fund LP. . . -7. .Chesapeake Capital Corp. . . . . -1. . . . . .56% . .06% . . . . . . . . -0. . . . . . 11.Superfund Capital Mgmt . . . .26%. . . . . . . . . . . The program trades 12 diverse futures contracts based on one of JWH’s long-term trend following models and includes an equity index overlay. . . .Superfund Capital Mgmt. -19. .70% 5.82% . EuroCapital Mgmt (Eurofin Client). .Managed Money Review BY DA N I E L P . . . . .87%. . . . . . Iowa. . .28% . . . . . . . . . L. . . . -3. . . . 14. . . . . . -0. . . . . PRIM’ Kappastocks. . . . . . . . . . . . .52%. . . . . . . . . . . . . . II . . . .66% . . . . .80% 4. . . . . . . . . . . . . .P. . . . . . . . . . .87% Note: Listed return may not be fully attributable to listed advisor(s). . . . . . . and Vision Financial Markets LLC have teamed up to offer a new concept in managed futures with the launch of the JWH Vision Program. . . . . . . -14. . Valu-Trac Invest. . . . . . . . 2. . . Source: Barclay Trading Group Ltd. . . . .5. . . . . . . .P. . . .000. . . .66% . . . .78% More than $10 million under management 1. . . . . Broadmark Futures Fund Ltd . . . .61% Currency Traders. . . . . . . . “There is a whole market segment that wants to invest in a managed account approach instead of investing in a fund. . . . . . . . . . . . . .23%. . . . . . Series A . YTD 14 FUTURES | October 2009 . . . . . . -47. . . -6. Comparing index returns S&P 500 Total Return Index Lehman Brothers Treasury Index Morgan Stanley EAFE Index Futures Public Funds (July) July +7.5% since 1995 with no negative years based on its backtest results. . . . . . . . . . . . . . . .17%. . . . . . . . . . . Henry Inc. . . Di Tomasso Group (Equilibrium) . .59% . . . . . . . . . . . “We took a model that had been trading for some time in one of our programs and we overlaid a stock index program that is not trend following.56% +0. . . . . . . . . energies. . . . . . . . . .com J ohn W. . .8. . . . . . . 11. . . .. .+2. . . . . . . . . . . stock indexes and currencies. . .. . . . . . . L. . . . . -2. . . . . . . -92. says based on an estimate of 800 roundturns per million. . . . . . . . L. . . . . . . . . . . . . . . .60% YTD +10. . . . .” Rothman says.8. 12.66%. . -1. . . . . . . . . . 6. . . . . .36%. . .FTC Asset Mgmt.8. . . . 11. 28. . . . .66% . 136. . . 8.28% . . . -1. . . . . . . . . . . . . . . . . . . .J. 4. .30% . metals. .43% . . . . . . . . . . . . . . . .2. . . .20% Futures public funds summary August 2009 Top performers in August Triad Trading Fund LP. . . . Mgmt. . . . . . . . president of Vision. “We are very excited about [that] because the first seven months have not been the friendliest time for trend followers. .09% . . . . . . . .6.56% 4. .6. . . . . . . . . . considerably lower than many high-end CTAs like JWH. . . . . . . * Offshore fund. . . . . . 13.Superfund Capital Mgmt. . . . . . . . . . . . 56. . . . Altruid Systems (Glorius) . . . It is a typical managed account managed futures program with a more accessible minimum investment level offered exclusively through Vision and its network of introducing brokers. . does not reflect the performance of any single account. .P. . . . . . . . . . . . . . . . -37. . . . . . Henry. The trend following model trades six sectors: grains. . . . . . . . . . . . . 8. . .70%. . . . . . . . . . . . . . .45% . . -3. . . .Superfund Capital Mgmt . . Howard Rothman. . . .Man Investments . . . . . . . . . . . .66% Morgan Stanley Charter Aspect. . . . . . . . . . . . . .W.45% 2. . .80%. . . . and the equity overlay trades the S&P 500 in a short-term countertrend model. . . . . . .39% . . . . . . . . . . . . .

E*TRADE Securities LLC and Trading Technologies are separate and unaffiliated companies. 1/10 the contract size. including trading volumes. System response and account access times may vary due to a variety of factors. suitability or profitability of any product or investment strategy.T:7” SIZE MATTERS. as well as MF Global floor brokerage charges for execution of non-electronically traded futures and futures options contracts.S. Excludes current E*TRADE Securities customers. other retirement. market conditions. Securities products and services are offered by E*TRADE Securities LLC. plus exchange fees). per contract.000 over the same period.com/1000 for updates. business. potential. an unaffiliated company. futures customers will be assessed certain fees including applicable futures exchange and NFA fees.COM/FUTURES 1-800-ETRADE-1 Important Note: Futures and options transactions are complex and carry a high degree of risk. Visit etrade. trust or E*TRADE Bank accounts. In addition to the $2. Introducing Forex E-Micro Futures. 1/10 the risk exposure. For more information. associates and non-U. All rights reserved. plus exchange fees) futures commissions for each futures trade executed once a qualified account is opened and funded and deposited funds have cleared.99 thereafter 1000 new accounts a day ETRADE. CME Group does not offer or provide any investment advice or opinion regarding the nature. The new account holder will be charged 99¢ (per side.com/options and etrade.99 (per side.000 minus any trading losses) for at least six months or credit may be surrendered. system performance and other factors. residents. $2. They are intended for sophisticated investors and are not suitable for everyone. Claim based on internal E*TRADE Securities metrics for average daily gross new brokerage accounts between 9/1/08–8/31/09. This offer is not valid for IRAs. . each futures trade is $2.com/futures or by calling 1-800-ETRADE-1. per contract. value. please read the Characteristics and Risks of Standardized Options and the Risk Disclosure Statement for Futures and Options available by visiting etrade.S. Limit one new E*TRADE Futures account per customer. E*TRADE FINANCIAL Corp. We reserve the right to terminate this offer at any time. After the 90 day offer period. 1. The Globe Logo. CME Group and Forex E-micros® are trademarks of Chicago Mercantile Exchange Inc. Member FINRA/SIPC/NFA. Offer only applies to new E*TRADE Futures Accounts opened with a $10. TRADE THEM AT E*TRADE NO FEE Futures Platform powered by Trading TechnologiesTM DIRECT ACCESS to Every Secure & Regulated U.000 minimum deposit. New net brokerage accounts were in excess of 140. Market FREE EDUCATION & Dedicated Customer Service T:9. These fees are not established by E*TRADE Securities and will vary by exchange.625” 1 N EW For 90 days.99 per contract per side commission. Account holders must maintain minimum funding in all accounts ($10. Futures accounts are carried by MF Global. ©2009 E*TRADE FINANCIAL Corp.

the dollar is very weak and interest rates are testing the downside.60 of September. Lien says if the Eurodollar ends September on a positive note.00 “If we can avoid frost. director of currency research at GFT. the NQ probably will be reacting to them first.” In early September the index crossed the technically important 50% retracement level of the move from the 2007 high to last year’s lows. “The weakness in the U. “It’s looking pretty overbought. Stocks are at highs for the year. not only outperforming other indexes but proving to be the best indicator for equities in general. the lows from 125000 the previous November unlike other 100000 major indexes.S.75 per bushel. “There’s not really a euro story going on right now. “In the U.” she adds.80 3. “Seventy percent of the time.48$1.” He expects the dollar to come back at the end of the year and the euro to move a bit lower. 0. 150000 but did not take out.3500 1. Analysts are watching revenues of components in the index closely.” Wherever those headwinds blow.20 futures rally. economic growth and a healing global economy would help create better demand for corn. “There are concerns regarding the default rate on higher yielding corporate bonds.. reaching nearly 1700 in early September. while the Dow and S&P crossed the 38% retracement level.382 (149302) 0. it’s going to [take] more time to filter into the economy.40 If we do get a frost.” Roscelli says. an indication that commercial traders aren’t concerned one way or the other unless there is a major widespread frost. Dolan says this year’s fiscal stimulus has had its biggest impact in the Eurozone. The euro had a strong run in September but analysts attribute the move more to U.48 around last December’s high. and the outlook is 4.80 Corn was slammed at the beginning 4.” Euro FX (Spot) daily 1.4500 1.00 Nov Dec 2009 Feb Mar Apr May Jun Jul Aug Sep mium in this market whatsoever. 4. so it should be watched closely. president of Brock Associates.500 (163875) 0.” says Richard Roscelli.250 (133000) 0. commodities are strong. ‘09) daily Euro trip $ per bu.” says Kathy Lien. the way the Eurodollar performs in September sets the tone for trading the rest of the year. chief currency strategist at Forex.3000 Nasdaq 100 soars 1.2500 E-mini Nasdaq (continuous) weekly 1. dollar weakness than euro strength and expect the dollar to continue to dictate where it will go next. but we believe the market longer-term is headed lower and could be headed a lot lower [because] there’s no shortage of corn. We’ve got no risk pre3.” Source: eSignal says John Sanow. It doesn’t have the violent downward pressure of the S&P because of all of the financials in it. it should help 3. it will continue to rise through October and November. 3. the E-mini 200000 Nasdaq 100 has climbed more than 175000 600 points. dollar is helping to support prices.Hot Commodities BY CHRISTINE BIRKNER Cracked corn Corn (Dec.000 (102125) Source: eSignal Dolan expects the euro to top out at $1. Australia and the UK.S.40 4. it’s very much a dollar story that is manifesting itself in strength in the euro. The index tested. analyst for DTN.50. “We should pull back to 1630 by mid-October. Sanow says futures spreads show bearish underlying fundamentals. “Once we get about 10% or 25% of the harvest. 4. vice president at Allendale. Sanow expects corn to trade in a sideways range.85-$2.618 (178448) 0.” says Richard Brock. com. but there are some definite headwinds.” says Brian Dolan. we’re going to start transitioning away from the production phase and the market’s going to be very sensitive going into the demand phase.60 we will have a tremendous crop. says U. More importantly.S. a broker at Whitehall Investment Management.90 per bushel. Joe Victor. 16 FUTURES | October 2009 . That could put pressure on a lot of the companies in this index. it looks like 3.000 (225625) Dec 2009 Feb Mar Apr May Jun Jul Aug Sep 225000 Since its March lows. which is a problem for the dollar. “It looks like the Eurodollar will extend its gains and there will be some resistance at $1.4000 1. “A portion of the tech companies do have good cash reserves but there are concerns regarding financing. “The markets overall are betting on a recovery into 2010 and the risk appetites are staying firm.47-$1.S. Sep Nov ‘08 MarMay Jul Sep Nov ‘09 MarMay Jul Sep the Nasdaq 100 has led this year’s Source: eSignal equity resurgence. Brock expects the market to make its annual low before the end of October and says December futures could be as low as $2.20 bearish through the end of the year. Victor expects pre-harvest lows for the December futures to be at $2.” he says. They’re up over 300% from last year.

www. The Exchange has developed the DME Oman Crude Oil Futures Contract. the Dubai Mercantile Exchange is the premier international energy futures and commodities exchange in the Middle East.com .The future’s here With over 670 million barrels traded and over 70 members. We mean business. In the years to come.dubaimerc. we will continue to take great strides and identify tomorrow’s trends. addressing the growing market need for price discovery of sour crude oil destined for East of Suez markets. providing a financially secure. which now trades on CME Globex. well-regulated and transparent trading environment.

but to capture a larger profit on a bigger move.72 On Aug.000). the December options expire on Nov.com is almost a 5:1 risk/reward. 2009 in the December contract.440 at $10 per $.000=$6.72 and the $54 put settled at 93¢. 28 you would have paid 372 ($3. Your total cost (not including fees) for the 74/64/54 fly on August 28 is $1. There is no need to become emotional or be forced to exit your trade before you decide whether your market projections are still valid. If you think you can pinpoint the market. It only took five months later to revisit $31. At $72. because if December crude oil closed above $77 that would be friendly.000 (64 put worth $4. and if you use a $. it is best to use known risk strategies. He has traded options since their inception. $76.000. If you wanted to “buy 1 December butterfly 74-64-54 put spread at 193” (that is how to place the order) s Buying 1 CLZ9 74 put @$6. One spread you buy and one spread you sell. is close to the yearly high and the $77 level ($75 front month) has been tested several times during the last three months. the $64 put settled at $2. The vertical spread is my first choice in placing a bet on which direction the market will go. That FuturesMag. So even with a $14 move. The “line in the sand” or bracket horizontal line appears to be $77. if partly right.72 s Buying 1 CLZ9 54 put @93¢ You would have sold and collected 179 ticks. If correct. Here is one example: I 74/64 vertical put spread.howardtyllas. The ultimate goal of this spread is to forecast where the market will be at expiration.1000 sell stop.000-$4. n October 2003.560.930).930 (372-179= 193 or $1. your profit would be $7. you would want to be able to control risk.87. the most you can lose is what you paid. Instead of buying the outright 74 put for 644.44 ($6. the vertical spread becomes expensive as well. The most you can make would be if the market closed at $64.16 on Aug. The simplest way to look at this spread is to understand that it is two vertical spreads.000. with the vertical spread greatly reducing that cost. An outright 74 put costs $6. the reward is great.440= $7. you lose 193 ticks. The fly spread gives you the right to be long the same strike price as the outright option. The high cost of buying an outright call or put option on most markets makes ownership quite expensive and in most cases a bad bet unless held for a short period of time. and if barely right. If oil settles at $70. about 2:1 after paying commissions. This strategy is reflective of the For more options opinion that on expiration.930 plus commis.com’s rect. If it did indeed go to $60. 6. 17.44 s Selling 1 CLZ8 64 put @$2.440 for a $14 move ($14. If cor.000 and 54 expires worthless: $10. December ‘09 crude oil settled at $74. The 74 put has the high cost of time decay working against it. it would be worth 400 ticks ($4. You can figure exactly the outcome at expiration at any price and this is helpful when selecting the strikes you want to use to reflect what you think. and that would happen below $54 or above $74 at expiration.07 you get your 193 ticks back. With the 74/64/54 fly. If you wanted to be a seller against the neckline.options page. and if wrong and the market goes up. you paid $1. go to crude oil will be trading at $64. What stands out the most is the current head and shoulders bottom formation with $77 being the neckline. About 1:1 risk/reward and it had to go to $60 to get that! The 74/64/54 fly at $60 is worth $6.44 ($6. For markets as volatile as crude oil. December strategies. 28. you still get even money.000 (about 3:1 risk/reward) 74/64 is worth $10.000 credit and 64/54 would be a debit of $4. 2009. The next strategy to look at is the butterfly spread. you know exactly what your risk is and the exact amount you will lose. you can greatly reduce your risk and greatly improve your reward using the fly. but lowers the cost significantly.com. Howard Tylllas is registered with the CFTC as a floor broker and CTA. crude oil staged an almost perfect bull market rally from just less than $30 that ended in July 2008 at $147. I can buy the fly spread for 193 ticks plus commissions.440) and would be purchased because you thought that it could go to $60 or lower for example. That level also capped the rally in 2006 and could not be hurdled until October 2007. the fly returns better than the outright put. If wrong. or believe you can be close. or the 74/64 put spread for 372.01). and a close or two above $80 would confirm a new bull market.000-$6.560 profit).720) for the 18 FUTURES | October 2009 . The high on Aug. sions and it is worth $10. a 10:1 risk/reward. instead of 372 or 644. And on the same order you would be: s Selling 1 CLZ9 64 put @$2.futuresmag.Options Strategy BY H O W A RD T YL L A S Question: How can you profit from your opinion in a volatile market when even a vertical spread becomes too expensive? Answer: Execute a butterfly put spread. the reward is very good. You paid $6. The December $74 put settled at $6. and the fly taking most of it away. His Web site is www.

>7DC688>8D9:/JCAD8@>C< I=:H:8G:IHD.I=:GJHH:AA>C9:M >ci]^hlZWhZb^cVgegZhZciZYWn?Z[[<gZZcWaVii! igVYZg!Vji]dgd[7gZV`i]gdj\]HigViZ\^Zh[dg EgZY^Xi^c\6cnBVg`ZiIgVYZgÉhA^WgVgn!VgZ\jaVg Xdcig^Wjidg[dg.G:: HE:6@:G/?Z[[<gZZcWaVii VcVanh^hVcYYZX^h^dcbV`^c\jh^c\.^WdcVXX^VcVanh^hiZX]c^fjZhidi]ZGjhhZaa >cYZmdcVh]dgiiZgb"WVh^hid\ZibdgZdjid[ndjgigVY^c\# NdjÉaaVahdaZVgc/ • HeZX^Va^ch^\]ihdcGjhhZaa>cYZmkdaVi^a^in!^cigVYVnbdkZh • IgVY^c\higViZ\^ZhheZX^Va^oZY[dgi]ZGjhhZaa>cYZm • >YZVhVcYiZX]c^fjZhjhZYWn?Z[[<gZZcWaVii^c]^hYV^an HEDCHDG:97N :K:CI9:I6>AH I>IA:/I]Z.jijgZhBV\Vo^cZVcYVcZmeZgi^c .C?D7H I=:.dgbdgZ^c[dgbVi^dcVcYidgZ\^hiZgk^h^i  [jijgZhbV\#XdbVcYXa^X`dcZkZcih . I>B:/)EB8HI 8DHI/.DJ7HOM.8I.^WdcVXX^ BVg`ndjgXVaZcYVgcdlLZYcZhYVn!DXi#'-Vi)eb8HI# .D8ID7:G'-q)EB8HI 9ECFB?C.^WdcVXX^VcVanh^h^ci]ZbVg`Zih!ndjÉaaaZVgc]dl idVeean.^WdcVXX^8dYZ/JcadX`^c\ i]ZhZXgZihd[i]ZGjhhZaa>cYZm 96I:/DXidWZg'-!'%%.

The credit dimension represents the ease of credit. Fundamentals. then risk appetite becomes favored over risk aversion and the inflation dimension is affected.S. Countries that supply China will benefit greatly from growth in China. width and depth. 20 FUTURES | October 2009 . Abe Cofnas is the author of “The Forex Trading Course” and “The Forex Options Trading Course” (Wiley). A related dimension is commodity prices. however. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Hyperinflation / Inflation / Disinflation / Deflation Growth / Stagflation / Recession / Depression Zero Rate / High Rates Account Deficit / Account Surplus Equity Bear Market / Equity Bull Market Risk Aversion / Risk Appetitie Consumer Confidence Producer Confidence Low Volatility / High Volatiity Easy Bank Lending / Tight Bank Lending Commodity Price Trend Housing Growth Rates China Growth Rate Dollar Reserve Percentage in Central Banks Foreign Ownership of U. Commodity prices indicate global demand. consumer sentiment. The next dimension maps the economic cycle stage.Forex Trader by A BE C O F N A S Forex fundamentals are multidimensional C urrency movements reflect multiple dimensions of the world economy.com. Global demand for commodities reflects anticipation of growth. they risk missing leading fundamental indicators of currency direction. It is by no means exhaustive. 2) China growth strategy: Those playing the China growth dimension have a direct link to buying or selling the Australian dollar. any of which may be driving a market at a particular time. One strategy would be to buy currencies of countries expected to be the first to tighten interest rates and sell currencies which will lag in tightening. From this a trader DIMENSIONS OF FOREX Fundamentals have multiple dimensions. A line is one-dimensional. so it’s the best indicator for shaping trading strategies. Forex is an irregular landscape. A market will tell us what dimension it is currently following and we can learn what other dimensions should be watched based on this. Is the economy in a recession or growth mode? If growth is expected. 3) Commodity complex: If the commodity complex has bottomed out. In mathematics. This leads to the housing dimensions. A growing housing market fuels expectation of increases in interest rates. Technical forex traders make decisions based on charts. which has displayed an 86-93% correlation to the Shanghai Index and can even consider the Brazilian real because it is highly correlated to the import needs of China. There also is a domino effect where one dimension is activated by a preceding dimension. No one knows how to do it with sufficient accuracy to avoid surprises. Israel was the first country to increase rates. We can move into the third dimension which has length. reflecting more closely the fractal properties of nature. “Dimensions of forex” (below) itemizes 15 key dimensions that affect currency price movements. there are several dimensions a trader can use to judge the state of the currency market and then to select an appropriate trading strategy. This dimension totally collapsed in September 2008 and led to a large shift in the risk aversion-risk appetite dimension. The first dimension listed is the deflation-inflation dimension. are multidimensional. then there would be few surprises in the market. Time adds another dimension. Who will be next? Current speculation focuses on Norway and New Zealand. As inflation increases currency prices tend to increase because of expectations of tightening by central banks. This landscape is complex but it is not incomprehensible. Short of the impossible task of constructing input-output matrix that takes all of the factors as inputs. which makes the interest rate expectation more important to consider. the Canadian and Australian dollars will have strengthening potential. Don’t be trapped into a onedimensional definition of fundamental. Learn them all and understand how they play off of each other and you will be better prepared to act on them. By focusing on technical analysis alone. Let’s derive some specific strategies for the coming months using our roughly constructed list. it requires thousands of dimensions such as productivity. Now let’s move this analysis into the world of economics. but each one represents a main input or force that influences market direction. The justification of these “chartists” is that the price reflects all known information. But if price were such a good indicator. Increased Chinese growth requires increased imports of resources. Long euro and short sterling is a common play based on the expectation that the eurozone will recover before Great Britain. When we try to accurately describe the state of the global economy or that of any country. Reach him at abecofnas@gmail. Chinese growth impacts the world economy because 35% of the Chinese economy is based on consumption. a dimension is the number of coordinates needed to describe the state of any object. China is a dimension of increasing importance. interest rates and politics. Length and width have two dimensions. Treasuries can determine what to look for and what to look at next. and then producing projected prices ranges. 1) The interest rate recovery strategy: Global interest rates have been in a stage of decline. The list can be used to determine what fundamentals are moving a market.

24 hrs/day More than 120 global currency pairs Trade day or night   .Speak directly with our staff.

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even while continuing to maintain a large balance sheet. By paying interest on reserves and theoretically setting a floor under the funds rate. some argue.” However. “we can’t just rely on interest on reserves to do everything for us going forward — not with the size of the balance sheet.” He is regularly heard on NPR and is the author of “Back From The Brink: The Greenspan Years” (Wiley). Ben Bernanke has made clear the Fed will not start tightening until recovery is established and gaining strength. which helped cause the housing boombust and financial crisis. “It’s too early to be contemplating a rise in the Federal funds target. But preemption does not seem to be the prevailing mood. the Fed can tighten credit by raising the funds rate and. the Fed has been able to push up the funds rate and in turn other rates pretty much at will to regulate credit flows.for an extended period. from which some dissent. But others will be inclined to move incrementally. ironically. There’s no question the Fed has the tools for the job. But. Threats to the Fed’s independence could fuel fears of debt monetization.” said Lacker.” but said the FOMC must be more prepared than earlier in the decade to “renormalize interest rates. was less reticent about early tightening. though perhaps not at quite so “measured” a pace as in 2004-06.. there is some sentiment for moving rates up swiftly once it starts. at what pace will the Fed tighten once it gets started? There is a body of thought. Steve Beckner is senior correspondent for Market News International.Market Watch BY STE VE N K. “I am certainly aware of the danger of aborting a weak. when the FOMC raised the funds rate by 25 basis points at 17 consecutive meetings.” Paying interest on all those reserves will become more and more costly as the Fed ratchets rates up. The Fed likely will have to sell assets to absorb reserves. That would seem to be the lesson of the Fed’s last extended period of easy money in 2003-04. In that environment. As for the pace of tightening. will be kept “exceptionally low. Growth is expected to be too sluggish to bring the unemployment rate down rapidly. hopefully without undue political pressure. which could grow as a recovery proceeds. uneven recovery if we tighten too soon. the FOMC must decide when and by how much to move. simply raising the funds rate target would likely be thwarted by the sheer volume of reserves. just how far will this “extended period” extend? The other imponderable is. targeted at 0-0. If and when the economy gains strength. San Francisco Fed President Janet Yellen said in July that the funds rate may need to stay at zero “for several years. His view seems to be widely shared. is that in the name of fiscal stimulus unprecedented federal borrowing to finance deficits estimated at a cumulative $9 trillion over 10 years. It hopes that tool will incentivize banks to keep holding large amounts of excess reserves at the Fed. that the Fed should be preemptive. when will the Federal Reserve start to tighten credit? The Fed’s policymaking Federal Open Market Committee has often stated its expectation that the Federal funds rate. 22 FUTURES | October 2009 . In past cred- it cycles.” The crucial question is. could drive up long-term interest rates and stunt business and household spending. an FOMC voter. rather than lending them into the economy.” “Keeping inflation well-contained may require action before a vigorous recovery has had time to establish itself. shrink the monetary base and avoid inflation. Commensurate reserve growth has ballooned the monetary base. Louis Fed President James Bullard. One is commercial real estate.” But Richmond Fed President Jeffrey Lacker. the inevitable question is. although there are divergences of opinion. But there can be a strong temptation to hesitate when emerging from a recession.” Splitting the difference.25% since last December. then it’s too late to forestall higher inflation or some sort of asset bubble. The instrumentalities of tightening will be different this time. and risks remain. told me rate hikes may be “quite a ways away. Finding the will and wisdom to use them appropriately will be the real challenge. said in late August that it would be advisable to be patient. Nor will the Fed be able to just sit back and wait for assets to mature and run off naturally. discourage a certain amount of lending. It won’t be quite so simple this time. based on woeful experience. which sponsors his Web site “The Beckner Report. increasing inflation expectations and counterproductively pushing up long rates. St. is that resource “slack” will keep inflation safely subdued for the next few years. “We’re going to have to move before the unemployment rate falls a lot. And the majority view. at the same time. also an FOMC voter.” The cautious consensus is borne of a feeling that this has been a peculiarly severe economic situation that has yet to be resolved. one of next year’s voters. BE CKN E R How aggressively will the Fed tighten? N ow that the economy is limping out of recession and the financial system seems to be stabilizing. There would be a tendency for the effective funds rate to trade below target but for one thing: the Fed’s ability to pay interest on reserves. and Congress may not like massive transfers of funds to the banks.. creating a looming inflation threat should increased lending expand the broader money supply. as Bullard observes. because the Fed’s massive lending and asset purchases have more than doubled its balance sheet to over $2 trillion. If it waits until the economy is in full-blown recovery. Another. Atlanta Federal Reserve Bank President Dennis Lockhart. awaiting conclusive signs of robust growth.

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Here’s a look at where both markets are headed through the end of 2009. dollar. The dollar also is impacting the metals sector.S.MARKETS Crude oil is back on the move and experts say that to determine where it’s headed next traders should look to equity markets and the U. Energy outlook: Crude correlations and what comes next BY CHRISTINE BIRKNER 24 FUTURES | October 2009 .

which will put a floor under the price of oil.S. but to make that argument you have to believe that the economy is going to recover and actually grow next year. dollar. The driving factor is the outlook for growth and the falling value of the U. Crude has a positive correlation to equities and an inverse relationship to the dollar — when the dollar is weak. Dow Jones and the S&P 500.S. dollar. crude was in the $70 range. supply/demand factors and geopolitics have shifted to the back burner as crude becomes more heavily linked to the U. is the dollar going to bottom out at any point soon and become bearish to the energy complex? I think it will.S. At the end of August 2009. Analysts say current dollar weakness and stronger equity markets have contributed to higher crude prices and should be the main movers of crude through the end of 2009. “For now.” Dominick Chirichella. He expects the dollar to remain weak the rest of the year and equities to stay firm. A study they conducted suggests that the increase in long non-commercial interest in crude oil fueled 25 futuresmag.” page 28). twice its February 2009 levels. Between now and the end of the year.” Rice University’s James Baker III Institute for Public Policy has a different take on the clear negative correlation of crude and the dollar. “Throughout 2009. Dollar weakness has fed into the rebound in oil prices. our stockpiles are well above the five-year average and we’re close to 18-year highs in our supplies of crude oil. crude tends to go higher (see “It’s not that complicated. senior oil analyst at Platts. Heavy stockpiles of crude show that supply is not a huge concern right now. “The overriding factor right now [for crude oil] is the state of the global economy.” Chatterton says. and that’s a pretty dangerous assumption.” he says.” says Linda Rafield. crude prices are going to be sideways to lower. “Stocks are at near-record levels.com | October 2009 . the fundamental supply and demand factors of the underlying complex are taking a backseat to views on the economy or what economic activity is going to be in the third and fourth quarter of the year and the first half of 2010. “The question is.” says Thomas Hartmann. In the dollar. we’ve got so much gas that it’s not an issue at this point. Dave Chatterton. dollar and the stock market. You could make the argument that by this time next year we could be in a tighter [supply] situation. says the dollar and crude will continue to show an inverse correlation. “In the U.W ant to know where crude oil is headed? Look no further than George Washington. analyst at Altavest Worldwide Trading. vice president at RJO Financial. says that equities and currencies have put oil in an uptrend going back to mid-March of 2009. founder of the Energy Management Institute.. it’s going to find a bottom and come off of those lows. taking their cue from the financial sector rather than from supply/demand balances in the oil markets. In this new world of economic chaos. the oil markets have been looking at the price of equity markets and the U. Even if we had a hurricane.S.

and they’re going to pick up a fair amount of slack in the Western world. which in turn created dollar weakness.80 1. We’re not looking for a blowup in the banking system. an analyst at CPM Group. by the end of the year. but also because there’s a lot of liquidity out there. That dollar weakness in turn pushed crude oil higher. NATURAL GAS OVERLOAD The supply story has become THE story in natural gas as inventories approach record levels. especially but beyond that. The theory that speculation from index funds was the main driver for the price of crude oil may be tested as the Commodity Futures Trading Commission appears ready to place limits on speculation and has already pulled the exemptions to position limits on some commoditybased funds.com for metals and mining news. Gold will go up in dollar terms because the dollar is weak. With risk appeconditions that are normally negative for the dollar and tite increasing. the weak dollar is also a huge driver for metals markets. exposure to metals that track economic recovery. and by mid-November. creating a vicious circle.60 2. If the [policymakers] start to 1000 take risks. managing editor of the commodity and energy service at BCA Research.00 1. “China is a third of global demand. it won’t be just a dollar story. COPPER 920 900 880 860 840 HIGH GRADE COPPER – Dec 2009 (daily OHLC plot) 3. but there are quite a few other variables that need to be considered. A tale of two metals M Check out ResourceInvestor.00 2. but [a new factor is] a systemic concern that the authorities will have to undertake Copper has outperformed gold in 2009. You could have a situation where there’s a 980 flight to quality and emerging market cur960 rencies and commodity currencies don’t do 940 well but gold does just fine.60 30 Mar 13 Apr 27 11 May 25 8 22 Jun 6 20 Jul 3 17 Aug 31 Sep 1. we’ve seen investors wanting to gain more positive for gold are there for the next six to nine months.80 2. The study notes that there was little correlation between the dollar and crude oil from 1986-2000. However. Market parnomic stimulus plans could change that longer-term.com Continued on page 28 26 FUTURES | October 2009 . the main factors are the weaker dollar. Japan and Europe should play an important role in copper markets through the end of the year. that tends to benefit gold. industrial demand and demand coming from China. If the dollar falls. which may be a positive economic sign as policy measures that are different than gold tends to rally on fear and copper demand is a good indicator of future growth. we’ll Source: Barchart .20 3.” he says.200$1.” says Catherine Virga.” Growth in China was the story for copper for most of 2009 and recovery in the United States.300 per ounce.” he says. Many analysts expect gold to go higher as the dollar gets weaker. This is an interesting notion. as we move to the end of the year.40 Abramson expects gold to go to $1.Markets continued a rise in prices. especially gold. adding that gold will appreciate in euro and yen terms as well. a 20-35% gain. it’s a very tough call. “It’s a traditional cyclical bull market. says eco“The dollar’s going to affect all of the metals. “The ticipants should keep an eye on open interest. Chirichella says that natural gas production has not been cut enough to get ahead of the declining demand curve. We have seen Chinese demand offset some of the weakness this year and from this point. anything they’ve had to do since the 1930s. GOLD VS. “It’s a plentiful liquidity story.20 2. Weaker dollar. David Abramson.40 2. stronger gold. natural gas inventories will exceed available stor- uch like the energy markets. That allows the dollar/gold correlation to GOLD – Dec 2009 (daily OHLC plot) 1020 break down. For copper.

he notes that gasoline demand is down compared to last year and diesel is down 10% year-to-date due to the recession. traders should watch economic recovery and supply situations in the natural gas market.” Brian Milne. heating oil) start to erode. Brad Smith.age space in the United States. That sector will come back.S. We need to see a pickup in industrial demand to see both natural gas stock and stocks of middle distillates (diesel.60-$2. “If anything.and long-term.80 per mmBtu. The next stopping point if nothing changes could be as low as $2. “The piece that’s absent in the natural gas market is the industrial consumer.60-$1. which could pick up as the economy recovers. price risk manager for U. That accompanied with a very large supply will drag prices down. He expects natural gas prices to fall through the end of the year. “Unless something major changes. Milne says there’s optimism that demand will return when the economy rebounds. Hartmann expects natural gas to get to the $2 range by the end of the year. Energy Services.” Chatterton expects heating oil to hit $1. barring any supply disruptions in the Gulf of Mexico. while supply is not a concern. However. but a pickup in manufacturing could help. but slowly. Chatterton predicts a year-end natural gas price of $3. Rafield expects natural gas to be at $3 by the end of the year. He adds much of the increased supply is due to decreased industrial demand. you could see fuel switching out of heating oil and into natural gas and that could put a floor under natural gas prices.75 per gallon by the end of the year and RBOB/Gasoline to reach $1. We saw a lot of reduction in industrial demand as a result of the recession. “Manufacturing activity has picked up in the third and fourth quarter. She says there’s also an inventory overhang in heating oil.” he says. “We can see how the contraction in GDP has weighed heavily on the demand for diesel fuel. says crude oil usually trades up to six times higher than natural gas. Natural gas prices right now are trading at levels that we haven’t seen since 2002.com | October 2009 27 .50-$4. says that medium.” page 29).” he adds. The economic downturn has contributed to decreased demand. but right now crude oil is trading at a ratio of 25:1 over natural gas (see “Widening chasm. demand (or lack thereof) is.75 to $1. refined fuels editor for Telvent DTN. but there are going to be a lot of drags based on the labor market and consumer spending that are going to hamper growth going into 2010.85 per gallon.” he says. we’ll be at the highest level of natural gas inventories as we approach this winter season. Right now the concern futuresmag. “Natural gas could go down to $2 if crude oil holds up. and that’s bearish. DEMAND DOLDRUMS For much of the energy complex.

dollar index (continuous) ■ Crude oil futures (continuous) Sep Nov 2008 Mar is on the demand side.00 40. while Japan rose to 50. Chirichella agrees.00 80.9. “Over the last six years. she adds.00 140. the bigger the possible volatility as we think about whether the Chinese and the other BRIC countries will need copper for infrastructure going forward. Demand still appears that it’ll recover. “We’ve reached a $3 (per lb.00 60. If U.” Abramson says.S. it could be negative for copper. 28 FUTURES | October 2009 .6 in January. Trading in China has been huge. as a hedge against devaluation of the dollar.S.S. says the recovery in the economy has helped copper. That’s the problem going forward — can that continue without bringing us back into a recession?” Obviously there are other factors in crude’s rebound. then copper can do well because China has been the real marginal buyer of copper. Virga says.” he says.00 70. Crude is being used as an investment tool. It’ll likely take until 2011 or 2012 to get back to where we were in 2007.00 30.00 130. We could see some recovery in diesel demand if manufacturing starts expanding in the United States.S.00 7000 6807 60.00 May Jul Sep Nov 2009 Mar May Jul ■ Crude oil futures (continuous) Jul Aug Sep Oct Nov Dec ■ U. “The manufacturing index has corrected.00 100.00 140.” Virga says.Markets continued IT’S NOT THAT COMPLICATED 140000 130000 120000 110000 100000 99625 90000 80000 70000 Jun 90000 88000 86000 84000 82000 80000 78805 78000 76000 74000 72000 May Jul Source: eSignal While Congress is blaming speculators and others are wringing their hands over a supply/demand disconnect.” he says.00 100. it’s not good for copper. “The supply trends for copper have been bullish in the sense that there are constant strikes and wage settlements. Abramson says that as long as U. but if it’s ebbing or going nowhere.00 90. ISM for July is at 48.9 in December.00 110.4 in July from 29. Continued from page 26 see Chinese demand ease.S. Traders should watch supply trends for both metals. 150. The big overhang on the oil product side is in diesel fuel. You see a huge amount of supply in crude oil.00 50.00 50. vice president of global futures at RBC Wealth Management. as natural gas and even hogs are proportionally represented in commodity funds used as an inflation hedge. but not as strong immediately. housing and car demand is collapsing.) area for copper and as we go forward you’re going to see more and more volatility because the higher the price.00 120. China has accounted for [a large portion] of the increase in copper demand in the world. The U. We could see a turnaround in diesel demand in the next several months. but the price is rising because we’re seeing investment flee the U. If we get a cold winter. so there has been a turnaround in manufacturing and we’ll see some growth” in the U.00 80. “There are probably only two commodities out there that are following their classic case of supply and demand: natural gas and hogs. copper demand isn’t collapsing. adding that demand growth will be slow in the United States and Europe and quicker in the emerging markets like China.00 30.. up from 32.00 40. If the economy continues to improve.00 2009 Feb Mar Apr May Jun Jul Aug Sep 150.00 90. The Energy Information Administration and the International Energy Agency expect demand to start to improve next year. you’re going to have better housing starts and you need copper for that. We’ve gotten used to these surprises and if they stop.00 110. and we expect that to continue. Now it’s a question of whether or not there’s going to be enough demand to absorb the built up inventories in China. crude oil is marching in stride with equities and opposite movements in the dollar.S. it’ll impact heating oil.00 120.” A rise in manufacturing has been good news for copper. George Gero. “Everything associated with economic recovery is going to result in an increase in energy demand for oil and natural gas. dollar and go into commodities.00 ■ S&P futures (continuous) 130. but it’s going to be slow. Hartmann says the economic downturn has thrown normal supply/demand fundamentals for crude out of whack. you have to look at what’s going on in China.” he says.

many experts including the EIA expect crude to settle into a range.” Check out weekly energy reports at futuresmag.” he says.00 NG ratio 80.00 6813 60. but near-term.com. then the disappointment will quickly turn around. Hartmann says the dollar is the main factor driving commodity markets right now and expects the dollar to get weaker in the near term. that ratio was 4 to 1 and it only reached 11 to 1 when oil peaked in 2008.” Chatterton says.00 25-1 CL to 100.” Chatterton says the expectation for increased demand has already been factored in. We need to see more than two to three weeks of data. 16. geopolitical factors seem to be taking a backseat in the crude market. If those things don’t start to show the improvement WIDENING CHASM The normal relationship between crude oil and natural gas has exploded as the current crude to natural gas ratio has reached 25 to 1. employment and other economic activity. and that offers some support for prices. or already priced in.00 10.com Sept-10 20. especially how it relates to the euro. “that’s a bit of a premature call. “If oil prices get back into the $80 range.00 2768 11-1 CL to NG ratio 140. crude will get into the $80 range. Nigeria or the Middle East — there’s plenty of excess capacity to make up for that. Any of the problems in Venezuela.” Rafield predicts crude will be at $75-$80 at the end of 2009 and Milne expects crude to break through $75 and target $90 towards the end of the year.” Chatterton says. I don’t see those as big price drivers toward the end of the year.com | October 2009 29 . which unfortunately doesn’t give much confidence to our foreign lenders.00 6.00 80.00 4-1 CL to NG ratio Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul 2004 2005 2006 2007 2008 2009 Source: eSignal CRUDE ROLLER COASTER TO END? 140. to see if crude oil and diesel fuel de-stocks and if demand picks up. FuturesMag. gas continuous weekly 14. it could hurt demand again and we could see the recession bite back.00 40.00 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sept-08 Jan-09 May-09 Despite the wild ride of recent years. “Traders should watch what goes on in global equity markets and the direction of the dollar. If they do show that.00 futuresmag. Milne says that ample crude supply deadens impact from Iran. traders should keep their eyes on the dollar and the stock market.00 60. “We’re going to have pretty loose monetary policy. Chatterton says that traders should also look at economic data from the IMF and IEA on demand. When natural gas hit highs in 2005. adding. He predicts crude will be at $70-$80 per barrel by the end of the year. they’ll be less of a factor.Rafield says that while there were some indications that oil demand was starting to firm in late August. “We’re probably going to be disappointed with the pace of that recovery and the length that it’s going to take to get these stocks to diminish to the point that they are bullish and will support these prices.00 120.00 ■ Crude oil futures continuous weekly 12.” he says.” Chirichella says. Geopolitical factors “are not a huge issue right now.00 ■ Nat. EIA estimates Sept-09 May-10 Jan-10 Source: EIA that has been anticipated.00 8. We’ll get a correction and head back to the $50 range by the end of the year. People are running away from the dollar and we’re letting it run at this point.00 40. “Iran will again come into play. “I don’t expect any changes out of OPEC. consumer confidence. then we’ll need those kind of indicators to gravitate prices higher. “[Those] are key drivers to the market. That lines up with a sideways-to-lower outlook for crude prices through the end of the year. With an abundance of supply and the current state of the economy. short of a war breaking out.00 120.00 100. Nigeria has successfully taken some supply off the market. Analysts agree that when it comes to crude.00 4.” he says. They also have to watch inventories diligently. In the near-term.

Here. we’ll examine how the current financial crisis affects the mathematical expectation of profit estimated using lognormal distribution. all of these questions will be studied in the context of different time intervals between trade entry and option expiration. is commonly considered a factor that dramatically raises the risk of substantial losses. corresponding to the crisis COMPARING PROFITS Here we can see the relationship between realized profit and the number of days from the moment of portfolio creation until the expiration date.EQUITY TRADING TECHNIQUES The financial crisis has been in play long enough to analyze its effects on various trading techniques. Three basic issues will be examined: how does the crisis influence the profitability of short option positions. Short volatility trading in extreme markets BY SERGEY IZRAYLEVICH AND VADIM TSUDIKMAN T raditionally. right up to the near-bankruptcy level. This is calculated as the integral of the payoff function with respect to the lognormal probability density function. accompanied by a sharp rise in historical and implied volatilities. 15 10 5 0 Profit. A popular metric is profit expectations based on various probability distributions. does the crisis change the structure of trading opportunities existing at the option market and is the effectiveness of the criterion used in selection of the most promising trading opportunities affected by the crisis? Because the timing of trade entry plays a key role in volatility selling strategies. or have strict mathematical guidelines. Two databases were used in this study. Even during quiet periods. Here. strategies based on selling naked options can lead to considerable losses. It is no wonder that a financial crisis. short volatility trading is regarded as a risky investment approach. Vertical lines represent standard errors. The first one. % -5 -10 -15 -20 -25 0 Crisis Calm market 10 20 30 Days to expiration 40 50 60 30 FUTURES | October 2009 . Scrutinizing the data of the current crisis allows us to judge whether such views are correct. Points denote average values. This procedure can be based on one or several criteria that may be informal. we examine volatility selling strategies with a discussion of the criteria that work. The success of almost any strategy based on selling naked options depends on the selection procedure.

2003.8 1. to March 30. the value that implies zero profit for both buyers and sellers.000/x.” left).2 1. 1. Also.000. The sum of mathematical expectations of all straddles in the portfolio gives the criterion value. a series of 60 portfolios was created for each expiration date. Within each database. Close to expiration date profits during both crisis and quiet periods are virtually the same. However. the number of trading opportunities falls sharply. Thus. criterion values were calculated at portfolio creation. covers the time interval from Aug. Each straddle used the strike closest to the current stock price. 1.6 1. profit does not depend on the number of days left to expiration. when expiration approaches. Besides. the difference between trading potentials is negligible. Both data arrays contain prices of options corresponding to the shares that make up the S&P 500 index. 2007. Close to expiration. 100 90 Trading opportunity. the rate of this decrease is not as high as during the calm period. where x is the price of the stock underlying the straddle. For all combinations. As expiration approaches.7 1. far from the expiration.5 1.4 Crisis Calm market k 1. during the crisis. potential trading opportunities exceed those in a calm market. which may be the most important conclusion of this study. The most “distant” portfolio was 60 trading days away from the expiration. We assume that trading opportunities are inherent to combinations for which the absolute difference between TrADING OPPOrTUNITIES This figure shows the relationship between the abundance of trading opportunities (the percentage of unfairly priced combinations) and the number of days from portfolio creation until the expiration date. These portfolios differed from each other in terms of time to expiration. Does it mean that the criterion used to reveal poten- futuresmag. the number of opportunities existing during the crisis is greater than those in the calm period. Each portfolio consisted of 500 short straddles related to the stocks forming the S&P 500 index. a decrease of average profit is accompanied by a sharp increase in its variability (vertical bars on chart). TAKING A TRADE A trading opportunity arises when the market price of the option deviates from its fair value — that is. 2. to July 31. the next one was 59 days. The quantity of options corresponding to each stock was determined as $1. more unfairly priced combinations arise during the crisis. Profits were calculated at the expiration date. and so on. The relative frequency of such combinations reflects the abundance of potential trading opportunities existing in the market at a specific time moment. “Trading opportunities” (above) shows that in crisis. while at the time of crisis.0 0.com | October 2009 31 . 2009. The second database corresponds to the period before the crisis (Jan. During calm periods. % 80 70 60 50 40 Crisis Calm market 0 10 20 30 40 Days to expiration 50 60 rANKING ANALYSIS The relationship between the coefficient of criterion effectiveness and the number of days from the moment of portfolio creation until the expiration date. which can be explained by high market volatility during the crisis.period. the profitability of short option portfolios falls as the time left to expiration increases (see “Comparing profits.9 0 10 20 30 40 Days to expiration 50 60 market and fair values exceeds 1%.1 1. while the profit is calculated by summing up profits and losses of these combinations.3 1. 2007).

it shows the same effectiveness regardless of the market phase. However.15 0. the number of trading opportunities is much higher during the crisis than during the calm period. the more effective is the criterion.20 0 Crisis Calm market 10 20 30 40 Days to expiration 50 60 effectiveness is highest close to expiration and decreases sharply as the time to expiration increases.00 -0. KP is the number of combinations included in both K and P sets (those of the profitable combinations which were correctly identified by the criterion at the stage of portfolio creation).05 0. which could raise the number of profitable combinations.05 -0. While near expiration. P is the number of combinations with profit realized at expiration that is higher than 1% of the current underlying asset price. This method is based on calculation of the coefficient of the criterion effectiveness k: DEVIATIONS FROM REALITY The relationship between the difference in profits (expected . This drawback can be compensated for by considering deviations of actual profits from their expected values and by using correla- tions between criterion and profit values.realized) and the number of days from the moment of portfolio creation until the expiration date. K is the number of combinations with expected profit higher than 1% of the current underlying asset price. CRITERION EFFECTIVENESS Several valuation methods should be applied to investigate the impact of the crisis on criterion effectiveness. the criterion based on mathematical expectation and on lognormal distribution is more effective in a quiet market. 40 35 30 25 Difference 20 15 10 5 0 -5 -10 0 10 20 30 40 Days to expiration 50 60 Crisis Calm market In the above.10 -0. “Ranking analysis” (page 31) shows that the criterion used in this study does not allow benefiting from the sharp rise in the number of trading opportunities occurring during the crisis.10 Correlation coefficient 0. The difference between expected and realized profits increases as the interval between portfolio creation and expiration widens. The higher the value of this coefficient. The criterion is considered to possess a forecasting capacity when k value exceeds 1.15 -0.20 0. Analyzing the criterion effectiveness will answer this.Equity Trading Techniques continued tially profitable combinations would allow identifying these additional trading opportunities. Ranking analysis of criterion effectiveness estimates the relationship between different combination sets. page 35 32 FUTURES | October 2009 .” above). This method is based on relative frequencies and omits absolute profits of separate combinations. Such direct relationship is evident both during calm and crisis periods. In both market environments. 0. B is the total number of combinations (500 in this study. the criterion CORRELATIONS The relationship between the correlation of expected and realized profits and the number of days from the moment of portfolio creation until the expiration date. We begin with ranking analysis developed on the basis of the set theory. Positive difference means that potential profitability of a combiEquity Trading Techniques continued. However. during the crisis. which is the number of straddles in every portfolio). the divergence of two profits increases at a higher rate (see “Deviations from reality. when this criterion is applied far from expiration.

hoping to profit on the spreads erosion factor. And while there has been progress electrifying simple options on futures.TRADING TECHNIQUES While the effect of liquidity moving to the screen has benefited traders on most fronts. The reason for this is the absence of the floor’s one-leg-in rule. many electronic exchanges don’t even accept market orders on single option trades. Regardless of the entry method. However. while the Globex “door” is open from 6:30 p. the market is the same. Traders now enjoy everything from streaming quotes showing accurate bid/ask spreads and market depth. the transparency of the true bid/ask spread of each leg gives the trader a little more control in the order entry process. With the creation of electronic global access. The inability to get trades filled at an acceptable price has caused many traders to abandon this type of trading. never mind what are considered complicated option chains.m. as well as the various electronic exchanges. However. to point-and-click trading with instant fills.m. technology is slow to catch up to multi-legged options spreads. To those who weren’t born into this exciting new world. The objective of a trader using option spreads is usually either outright premium collection. To reach this objective successfully. the current landscape is incredible: The things traders fantasized about in the 1980s and dreamed about in the 1990s are now not only a reality. or to collect premium to lower the cost of the primary long option. Many order-entry platforms. All is not lost. It’s just that the pit session “door” is accessible from 8:20 a. traders have witnessed an unprecedented advancement in trading technology and access to the markets. While the equity options world has long been primarily an electronic market. Getting your fill: Option spreads BY PAUL BRITTAIN AND RICH ROSCELLI O ver the last decade or so. open outcry (pit session) or the Globex market (electronic access). NOT TRUE FOR ALL MARKETS The only order-entry challenge for a modern-day futures trader is placing option spreads. traders now have multiple doors of entry to many of the markets. options on futures are the last bastion for the futures trading floor. That’s 22-1/2 hours a day for Globex! It’s also worth mentioning that you can enter through one door and leave through the other. consider this: Chicago Board of Trade Treasury bonds are one market with two doors to gain entry or exit. Here are some ways to enter spread orders that can shave ticks on execution and give you an edge. Although option spread traders are limited in methods of order entry. complex orders still require that personal touch. nor do they take limit (or better) orders on spreads. where on multiple-legged option spreads not all the legs had to be filled within the option’s futuresmag. but a necessity. To better understand how this new access is a benefit to a trader. until 3 p. pricing control is essential. those who have used both markets will tell you that the Globex alternative offers faster fills with more transparency. Not being able to work multi-leg spreads through an electronic platform on a limit order has left many spread traders perplexed. The days of an active day-trader having to manually match buys and sells to see where he or she stands is a thing of the past. (Eastern). and up-to-the-second account reconciliation and accounting.com | October 2009 33 . do not accept multiple leg (beyond verticals) option spreads. (Eastern). Electronic option traders need to learn how to get around the limitations imposed by today’s technology to get the job done. It’s the same market.m.m. It doesn’t matter. this seems to confuse many traders more than help them. In fact. until 5 p.

What this entails is a constant calculation of each of the legs. traders would place a multiple-legged spread all at once. just as in open outcry. Instead. Electronic option market traders should consider a similar strategy that applies to open outcry: Tighten up the market rather than joining the current bid or offer posted on the screen. Traders then would place the trade using a single price. The trader must be aware of whether the quote system is streaming (real time) or snapshot (has quotes that must be manually refreshed) with regards to option prices. The price was usually derived from getting the bid-ask spreads on various suitable strike prices based upon the technical analysis at the time of the trade. taking the ask of the long option and subtracting the bids of the short options. The closest thing the electronic markets might have would be a market-depth feature that displays the quantity of contracts at price intervals above and below the current bid/offer levels. This rule was created to make it easier for the floor broker to fill these types of spreads. leaving the execution of the trade in the floor broker’s able hands. resulting in increased option volatility that may increase or decrease the chances of an order being filled. This strategy isn’t possible in an electronic environment due to the complexity of the math involved in the execution. allowing for adjustments to keep pace with market volatility and dynamic order flow. The electronic markets offer an even greater hurdle when you join the current bid or 34 FUTURES | October 2009 . It also is beneficial to set up the bid/ offer data for the underlying futures contract within close proximity of option quotes. The option floor broker would then try to fill the legs within the trader’s price limit. we have to enter each leg of the trade individually. With these data close at hand. but it made the liquidation of the individual leg more difficult due to the possibility of a random fill when the order was originally filled. In many cases. This could offer clues as to where institutional positions may be setting up. as long as the entire spread was filled within the price limit placed. traders can fill each leg of their option spread with a click of the mouse. Many traders are not aware that the displayed option quote is the last-filled trade and may or may not be anywhere in the ballpark of where the market currently is. A trader in the electronic markets does not have the luxury that open outcry brokers have of seeing when a large institutional house shakes up the futures and options pit. TECHNOLOGY MATTERS A good quote system is needed to ensure the accuracy of the execution. Time 14:29 14:29 14:29 14:29 14:29 14:29 14:29 14:29 14:29 14:29 14:29 14:29 14:29 14:29 14:29 14:29 14:29 14:29 14:29 14:29 Source: eSignal Volume 4 4 36 2 164 98 186 198 204 114 44 10 305 187 18 88 90 High 6825 6450 5580 5750 4910 4300 4725 4425 4125 3825 3550 3275 3025 2800 2550 1950 2125 1925 1725 1550 Low 5275 5650 5580 5275 4910 4300 4175 3350 3350 3150 2275 2200 2425 1800 2125 1925 1575 1400 1300 1000 Bid 5775 5425 5075 4750 4425 4150 3850 3550 3275 3025 2800 2525 2300 2100 1900 1700 1550 1375 1225 1100 Ask 6250 5900 5550 5200 4875 4525 4225 3950 3650 3375 3100 2875 2650 2400 2200 1950 1825 1650 1500 1350 Change +1300 +1275 +1225 +1225 +1150 -275 +1075 +1025 +975 +925 +875 +850 +800 +750 +700 -50 +625 +575 +550 +500 Last 6275 5925 5575 5250 4900 4300 4275 3975 3675 3400 3125 2900 2650 2425 2200 1950 1825 1650 1500 1350 Symbol SEP2009 925 SEP2009 930 SEP2009 935 SEP2009 940 SEP2009 945 SEP2009 950 SEP2009 955 SEP2009 960 SEP2009 965 SEP2009 970 SEP2009 975 SEP2009 980 SEP2009 985 SEP2009 990 SEP2009 995 SEP2009 1000 SEP2009 1005 SEP2009 1010 SEP2009 1015 SEP2009 1020 Last 1900 2300 2200 2350 2525 2700 2875 3075 3275 3500 3750 4000 4525 5125 5750 6450 Change -650 +250 -700 -750 -775 -825 -875 -925 -975 -1025 -1075 -1100 -1200 Bid 1900 2200 2175 2350 2525 2675 2875 3100 3300 3525 3750 4200 4700 Ask 2150 2325 2475 2650 2825 3000 3225 3425 3650 3900 4150 4275 High 2225 2300 2190 2875 2875 2950 2875 3325 3425 3775 3875 4350 4475 Low 1725 2300 2190 2125 2300 2475 2625 2775 3025 3200 3425 3650 4150 4775 5750 6440 4850 5025 5700 5750 6350 6440 -1275 5300 -1375 5550 -1450 trading range.Trading Techniques continued DEPTH OF VIEW On most platforms. Views that combine option bid/ask prices with futures depth-of-market displays are most useful. remembering that we pay the ask on the buys and sell at the bid on the shorts. the trader can determine if the price placement of the bid and offers is in sync with the current market. In an open outcry environment. the bid/offer quotes are the result of market makers who may have little client paper on hand that has real interest in being filled.

Of course. indication of where the order is sitting within the queue. if the investor estimates the potential profitability of option combinations far from expiration. so traders can see if institutional investors could be stepping in to hit with potentially market-moving activity. you simply subtract the credits of 39 points (short options) from the debit 33. receiving 2200. In this trade. it does not mean that the whole class of strategies based on selling naked options should be excluded from the investment plans. However. The next crisis is usually different from the last and often more extreme than what is modeled for. Traders can quickly fill each leg in with just the click of the mouse on most of these platforms (for example. traders can adapt their old skills and emerge better off and better prepared for the next leap forward in trading technology. There are many order entry platforms that have streaming quotes and include accurate bid/ask spreads on their option chains (see “Depth of view”). traders need a risk management plan that goes beyond simple modeling. the trader would receive a credit of 5. When the expiration is distant.75 = $287.” page 32). The price action on the underlying futures contract. which are debited from the credit. Sergey Izraylevich has a Ph. During the crisis period. The new electronic world has many benefits. the criterion fails only when there are more than 10-15 working days until expiration. receiving 1700. Roscelli has managed institutional and electronic trading desks since 1995. or in E-mini speak: $50 x 5. This owes to the sharp price fluctuations (historical volatility) and to growing option premiums (implied volatility) that lead traders to make more mistakes in estimating fair option values. what the final credit is depends on the trader’s transaction costs.D. Negative difference implies that the criterion underestimated the potential profit. Equity Trading Techniques continued Equity Trading Techniques continued from page 32 nation was overestimated. During the trading day. the variability of deviations of actual profit from estimated values is high. ENTER THE S&P One market whose options offer some of the best elements of electronic and open outcry is the E-mini S&P 500. such as short volatility trading. so price action is especially fluid. exploiting these additional trading opportunities is difficult because their discovery using traditional criteria (developed and optimized during calm periods) is impossible. close to expiration. correlation coefficients corresponding to both market phases are almost equivalent. criterion values should be adjusted by introducing a correcting coefficient (the slope of the regression line shown in the figure can be used). but there are still a few areas where the organic markets are preferable. In this case.25 points (long option) and tally the difference. from Hebrew University of Jerusalem. However. The dawning of the crisis period generated additional trading opportunities for option traders (see “Trading opportunities”).ru futuresmag.com | October 2009 35 . Close to expiration. or where the order sits in line as it waits to be filled. deviations between actual and estimated profits are small for both market phases. Although the frequency of false estimates may increase even in this situation. even though it is traded electronically.50. with the same tendency toward evolution that brought us the connected financial landscape that we benefit from today. He also would sell the naked 1000 call at the bid. these losses can be reduced and even turned into profits by shortening investment horizons (see “Comparing profits”). To calculate the cost. The crisis does not affect the effectiveness of the criterion when its application is limited to a short time interval between portfolio creation and expiration. This means that the crisis does not decrease the effectiveness of criteria applied shortly before expiration date. the lower the correlation coefficient. Still. during the crisis. Therefore. offers cues on volatility and price action via the CME Group pits. Although the majority of short portfolios might indeed generate considerable losses during crisis periods. and then sell the 930 put at the bid. if the trader wants to create a bear put spread with a naked leg in the E-mini S&P). it does not affect the valuation of average profitability of short option portfolios. Paul Brittain and Richard Roscelli are brokers with Whitehall Investment Management Las Vegas and are regular contributors on fixed income to Futures magazine. Vadim Tsudikman is a director at Hortan and develops trading systems based on genetic optimization algorithms. The correlation between criterion values and calm-period profits grows as time to expiration increases (see “Correlations. not market makers. the trader is buying the 960/930 bear put spread and selling the 1000 call as the naked leg.75 points. The trader would buy the 960 put at the ask of 3325. Despite the adverse effect of crises on high-risk strategies. especially far from expiration. Nevertheless. the options are some of the most liquid.offer: You will have little. Contact the authors at izraylevich@htinvest. Near expiration. average profit is slightly overestimated in calm periods and highly overestimated during the crisis. The inverse relationship is observed during crisis: the farther away expiration. if any. Because markets can go several years without extreme crises. the crisis does not affect the quality of the criterion. At the same time. adjusting coefficients will produce no more than a limited effect. The bids and offers are set primarily by traders. He is the chief investment officer of Hortan SARL and chairman of High Technology Invest Inc.

the first semester is an implementation of the model using a simulation platform. FuturesMag. We will calculate girth at the close of each four-hour candlestick. momentum and velocity. The module will be managed along the lines of “Adding Girth To Your Profits” (Futures. we discuss a program that teaches the girth model and how the model can be used to manage a currency portfolio prudently. Existing trades will be closed when the girth indicator decreases below a specified threshold. the simulation will look and feel like a real portfolio. following training in market methodology and the use of a disciplined trading plan. In this article. if the 10-period EMA crosses above the 20-period EMA. early exit due to decreasing girth results in a more favorable profit position than that taken if the trader simply waited for an exit on the EMA cross to the downside.com the students would still be watching the girth number at the four-hour intervals. and the trading software used. Reviewing “Early out” (right) shows how the model picked a strong trend upward. We will use girth as an early close indication to both long and short positions. December 2008). and indicated an early close to the upside trade in late May. the students are novices to the commodity markets. We saw a limited cross to the downside and then a resumption of the uptrend. when the girth figure crossed below the girth threshold. On or around the second week of classes. Typically. Both trades were exited prior to the EMA cross. However.34 to 1. Only if the students demonstrate the discipline and the desire to continue on a team-based approach to managing a forex portfolio will real money be used. which focuses on the management of a stock portfolio. indicating that the trend may reverse. The students would be watching the four-hour girth threshold and the trend indicators and would have entered another long position. one-hour girth model for trading currencies incorporates volatility. There are significant operational risks to managing a forex portfolio in an educational setting. Foremost. momentum and velocity. the method of the model management itself. They will use the 10-period exponential moving average (EMA) and the 20-period EMA as their proxy for market trend.com. The graph shows how the trends and the girth indicator are used to preserve profits pending a reversal in trend. and focuses on the methodologies of the markets and the nuances of the model. even using a non-discretionary model.TRADING TECHNIQUES The four-hour vs. two long positions were taken. the students will open one simulation account for the management of the 36 FUTURES | October 2009 . During the late May move from 1. the model will go long). and will be managed out of the Hanley Group Derivatives Trading Center. They were both entered at the time of the EMA cross. any significant operational risks will be brought to light without the danger of a large monetary loss. thus. THE TRADING METHOD Students at the University of Dayton will manage a euro portfolio around the four-hour currency cycle.44. See the girth model and follow performance at futuresmag. However. The model will enter new trades only on an EMA cross (for example. MCNEW AND TUP INGRAM A n experiential learning module has been introduced to the University of Dayton Business School for the fall 2009 term: managing a small currency portfolio around market trends. This new module dovetails with the Davis Center for Portfolio Management. Learning to trade: It’s academic BY LESLIE K. Therefore. The girth model is a trend-following model incorporating volatility.

the seventh team supervises the other six execution teams and performs backoffice functions such as trade documentation. Six of the teams are responsible for data collection. The Hanley Group Derivatives Trading Center is the hypothetical owner of the portfolio. subsequent signals would have checked up and re-entered the trend on its resumption. 2009 executing student immediately notifies another member of his team. the use of simulation money will be irrelevant to the learning experience. Teaching novice traders a strict control on data input.com | October 2009 37 . enter a new trade or take no action.3978 1. team becomes the executing 7 a.m. floating P/L and other parameters of the fund’s performance. LOGISTICS MATTER The experiential learning skills being taught in this class go beyond forex trading methods (both fundamental and technical). 2009 03:00PM May 29. Risk management is largely intrinsic to the girth model. At the end of New York trading on the last trading day of each month. At the close of its candlestick. In other words. so there is no market close during which to discover and to correct errors through the week. trade exit and passing the book to the next group watching the next four-hour time block will be difficult enough.3440 03:00PM May 15. The managing team also is responsible for preparing weekly reports summarizing the fund’s closed trades. profit and loss reporting and data analysis for risk management and preparation of investor reports. trade initiation and trade exit.m. but also cover the skills involved in the running of a small fund: front.EARLY OUT Although the model may have initially exited early. These steps have been implemented to mitigate any issue of an operationally contaminated book. middle and back office skills coupled with trading teamwork.3664 1. each student stays on one team for one week. if girth and trends dictate. we do expect human error.3632 Narrow Girth Indicates Early Exit from Long Sell at 1. team. who independently enters the data to confirm the action. In the event that trade entry or exit is indicated. Working with novice traders has necessitated having.com 03:00PM May 22.4000 Enter Long Position at EMA Cross Buy at 1. The end-ofmonth liquidated positions may be reestablished at the beginning of the new month next trading day. Each of the executing teams is responsible for one of the day’s four-hour candlesticks. girth model.4081 1.4336 Enter Long Position at EMA Cross Buy at 1. 2009 03:00PM Jun 05. each morning the management team confirms the accuracy of all the data entered into the model over the last 24 hours. one open position at a time in the portfolio. 2009 Source: MG Forex. the model then indicates one of three options to the executing team: close the current trade. the fund closes any open position and goes to cash.m. the specified executing team inputs that candlestick’s data into the spreadsheet model. The managing team is responsible for this action and for the preparation of the end-of-month performance and investor return reports. HIDDEN RISKS Another significant operational risk is the passing of a contaminated book: a model that has errors in it. Operationally. team becomes the management team. trade entry. the class is split into seven teams of three to four members each. as the model never enters trades against the four-hour trend.4224 1.3888 1. team may bear the most executing operational risk due to the time of the candlestick close and the sleep cycle of most students. Additionally.3552 1. not using girth to add positions in a strong up or downtrend. In the event of no action. and the executing 11 p. To mitigate this risk.4112 1.m. Each class will have approximately 25 members. the student running the model updates the model and e-mails it to all members of his team and to the subsequent executing team in the candlestick time frame. It is obvious from the chart in “Rolling forward” (page 38) that the executing 3 a. prepares a daily profit/loss report that combines both cash and mark-to-market positions and reports any anomalies to the fund’s faculty supervisor and the center. The girth model presented in the December 2008 article also has been simplified to its base form: using girth only to indicate early exit. the futuresmag. the first student takes the indicated action and e-mails the updated model to his and the subsequent executing team. Further. including any operational risk occurrences or human errors. If the process runs properly. Based on the continuously updated girth threshold (as monitored by the professor and overseen by the management team). After confirmation.3776 1. the operational risk of managing the simplified early exit position is great. Because there are six four-hour candlesticks. 1.4186 1. and the student teams furnish the center with daily and monthly profit/loss reports. at most.3928 Narrow Girth Indicates Early Exit from Long Sell at 1. the forex market trades continuously from Sunday late afternoon until Friday late afternoon. and then assignments are rolled forward: the executing 3 a.

the actual calculation of VaR needs to be taught before such an undertaking ensures.TheEminis. Tup Ingram is a private trader.m. which will be performed on a daily. The group will prepare a professional road show presentation. The process has a large risk of human and operational error. Basic reports will be posted to the Web at the same frequency. comparing the fund’s performance to various benchmarks. average trade length. If normal market historical volatility dictates 80 pips of noise in the market. Management Management Team s On call all day for problems with model Executing 7 a. Department of Economics and Finance at the University of Dayton Business School. However.com. maximum drawdowns and any deviations from the trading model. if historical volatility has increased two fold. Executing 7 p. Executing 11 p. FREE INTRODUCTORY VIDEO www. 38 FUTURES | October 2009 .m. it inherently limits losses. However. running the model in simulation to build experience is prudent. P/L (cash and floating). Leslie K. and evaluating correlations between the fund’s performance and that of other investment types. thus. and then looks to make an early exit from the position. McNew is a clinical professor of finance and visiting director at the Hanley Group Derivatives Trading Center. after the trend is established. Dr. Executing 3 p.m. Further. The girth model works best when there are strong trends during the fourhour time frame.Trading Techniques continued ROLLING FORWARD The responsibility of each team is unique. then the stop loss will be set higher than 80 pips as a factor of volatility. Of course. and all students get an opportunity to work and learn on each team. Executing Team At the close of each candlestick. even after the requisite knowledge base is obtained. which is determined by the volatility of the market. the executing team: s Inputs candlestick data into model spreadsheet s Evaluates need for trade at end of candlestick (open or close position) s Executes any indicated trade within 15 minutes of candlestick close s Rolls girth book to next executing team within the day management and trade execution (will be called by executing team) s Responsible for confirmation of acurate data and trade entry s Responsible for daily reporting s Responsible for data backup s Responsible for keeping operational error records s Responsible for setting next week’s execution team schedule s Produces monthly cash reporting s Maintains and updates website CMT What sets you apart during these volatile markets? CMT.m. The move to trading real money depends on how well the simulation goes. the only designation for Technical Analysts that TXDOL¿HVDVD6HULHV exemption. VaR. R Registration is Open Sign Up Now More info: cmt@mta. Implementing the girth model also gives students a chance to calculate value at risk (VaR) and to monitor VaR over a floating P/L position. E-mail him at tupingram@gmail. At the semester’s end. E-mail her at lesmcnew@gmail.m.com.org or 646-652-3300 The model instead is traded with the trend. then an 80-pip stop loss is set. For these reasons. Students will be required to produce updated analyses of volatility.m. the entire group will issue a written report to the center summarizing the fund’s performance. monthly and end-of-semester basis.com r Auto Trading Software r Trade for Daily Income r Outstanding Personal Support r New Pro Indicator! Executing 3 a. the trader will never be able to hold a long position against a short trend. Recognized by FINRA. A strong sense of discipline will also be instilled via reporting. Executing 11 a. The model may churn or yield no profits if the market is not trending during the four-hour time frame. each trade will be entered with a hard stop loss. weekly. There is a lot to learn and a lot to implement before the girth model can run smoothly.

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the futures generally trade at lower levels.88 25. there is DIFFERENTIAL The VIX futures do not always follow the spot. particularly index volatility. or VXD.81 69. When the closing bell goes off on expiration day. nor can wild gyrations in the stock market last indefinitely.75 9.76 29. When analyzing a financial instrument’s price.17 30. it was based on the implied volatility of S&P 100 options. In 2003. commonly referred to as OEX options.10 32. every investor.12 16. there was talk that financial engineers had found a way to take volatility out of the market 40 FUTURES | Fall Special: The Trader’s Survival Guide 2009 . When analyzing volatility.05 18. Let’s look at some examples. That is why the VIX has acquired the nickname “fear gauge.71 17. either consciously or unconsciously. SPOT VIX 1/10/06 1/20/06 4/19/06 6/13/09 7/17/09 9/13/06 10/13/06 11/21/06 2/18/07 4/27/07 7/27/07 8/16/07 10/09/07 5/15/08 7/14/09 8/22/08 10/10/08 10/27/08 11/20/08 1/05/09 3/02/09 5/28/09 7/24/09 8/28/09 9/01/09 Source: CBOE 10.92 23.83 16.44 12.65 28. There is the intrinsic value and the time value.00 13. or VIX.18 10. the February futures closed at 13.25 18.15 FEB FEB MAY JUL AUG OCT NOV DEC MAR MAY AUG SEP NOV JUN AUG SEP OCT NOV DEC FEB APR JUN AUG SEP OCT FUTURES 13. When the VIX was originally introduced in 1994. the time value is based on the number of days until expiration and the demand for the option.60 39. traders should pay even more attention to mean reversion.45 24.90 10.10. GVZ is based on the implied volatility of the options on the GLD ETF (exchangetraded fund). During the volatility slump of 2005 and 2006.97 15.84 12. the CBOE Crude Oil Volatility Index (OVX). Prior to that time.95 80.00 59. On Jan. 2006. pays attention to mean reversion.32 23.68 16.THE TRADER’S SURVIVAL GUIDE Volatility is the one component of the marketplace in the past year that has threatened a trader’s survival more than anything else.60 23. There is the CBOE Dow Jones Industrial Average Volatility Index.30 28.79 11. Here are some tools for managing volatility risk. The February VIX futures closed at 13.50 11. The VIX is based on the implied volatility of the S&P 500 options. Five hundred stocks will not sit still forever.63 19. Each one of these indexes follows the VIX methodology.06 80. The premium paid for an option is divided into two parts.41 27.55. The granddaddy of them all is the CBOE Volatility Index.50.48 18.20 no time value left. the CBOE Russell 2000 Volatility Index (RVX).04 13. The greater the uncertainty or fear in the marketplace.29 46.52 11. Managing and profiting on volatility BY DAN KEEGAN T he Chicago Board Options Exchange currently has a number of indexes based on volatility. the greater the demand for options. When the spot VIX jumped to a closing price of 14.09 24.87 21.” Is there a large differential between spot prices and forward prices? There certainly is a significant difference.86.64 11.86 14. When the VIX overshoots the mark.04. the VIX closed at 10. Implied volatility is a reverse engineering process whereby the price of options implies the volatility of the underlying instrument that the options derive their value from.60 21.86 39. Other indexes are the CBOE Nasdaq 100 Volatility Index (VXN).81 18. the CBOE Gold Volatility Index (GVZ) and the CBOE EuroCurrency Volatility Index (EVZ).30 66.08 52. the VIX was changed to a measure of the implied volatility of the S&P 500 (SPX) options.40 40.05 31.55 12.

00 1400. That is not a great situation if the investor sold premium at a lower level.000. It turns out to be a 6% loss instead of a 20% loss. This means that the number of options used in the calculation is in a constant state of flux. more of them can be acquired. it looks like a chart for the S&P 500. The November 40 calls are trading at 15. Positive skew means that the further away from the at-the-money option.19 20. the current VIX futures and options can provide plenty of firepower. While the long-only portfolio loses $200.00 80.00 1300. VIX options (VRO) are European style options that can only be exercised on the expiration day. Let’s say that an investor with $1 million invested in a long-only fund purchases 100 VIX November 40 calls for $1.00 900. This means that the price for protection is higher when using SPX puts as your insurance. Negative skew means that the further away from the atthe-money option.00 1100.” This portfolio would be a beneficiary of decay in the options. The inverse relationship between VIX and the marketplace makes the VIX a perfect hedging vehicle.00 700. Since VIX calls are cheaper. Out-of-themoney VIX calls tend to work better than out-of-the-money SPX puts.00 70.00 80. One other candidate would be a diversified portfolio that is net “short premium.49 40.00 40.00 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 2008 2009 Source: eSignal 1500. the VIX calls return a profit of $140. There is then a 20% sell-off in the market.00 O S&P 500 O VIX and the November futures are trading at 54.00 50.00 60. on the Wednesday that is 30 days prior to the third Friday of the following calendar month. That would mean even more premium that would decay. Who should be trading them? One obvious candidate would be a longonly fund. A “short premium” portfolio would be subject to an increase in implied volatility. the greater the implied volatility. The VIX is a real-time market estimate of expected volatility that is calculated by using the bid/ask quotes on S&P 500 index (SPX) options. VIX uses the options from the two nearby expiration cycles with at least eight days left to expiration and then weights them to yield a constant. One day each month.com | Fall Special: The Trader’s Survival Guide 2009 41 .71 1000.70.00 50. While the spot VIX might give you more bang for the buck. 1500 1400 1300 1200 1100 1000 900 800 7000 6799 6000 5000 4000 3000 O Crude oil O Crude oil VIX 100.00 Aug Oct Dec Jan Mar Apr 2008 Jun Jul Sep Oct Dec Jan Mar Apr 2009 Jun Jul Aug 90. Zero bid calls and puts are not involved in the calculation. the investor could still benefit from decay without becoming insolvent in the process should a Black Swan event take place. the OVX steadily climbed during the volatility run up to $147. investors are willing to pay something for far out-of-the-money options that they normally would not. 30-day measure of the expected volatility of the S&P 500 index.00 60. When the market is highly volatile.00 800.00 25.00 30. The VIX pops up to 60 VARIETY OF VIX While both volatility measures caught the increased fear as markets sold off. What does that mean? Volatility skew refers to the varying implied volatilities per strike price. Why is that? The SPX volatility skew to the downside is more positively skewed than the VIX volatility skew to the upside. If you look at a chart for VIX and turn it upside down. American style options can be exercised at any time. If managed properly.000.00 44. the more out-of-themoney calls should be held in their portfolio.00 30.00 70.00 1012. VIX options settle on these Wednesdays to facilitate the special opening procedures that establish opening prices for those SPX options used to calculate the exercise settlement value futuresmag. It will be a long time before anybody makes a statement like that again.00 1200.70.00 90. The more highly leveraged a long-only fund is. Both atthe-money and out-of-the money puts and calls are involved in the calculation. the lesser the implied volatility. the SPX options expiring in 30 days account for all of the weight in the VIX calculation.as a variable to be considered. Another reason to trade VIX options is because it has become a robust market with plenty of liquidity.

The exercise settlement value for VIX options (VRO) is a Special Opening Quotation (SOQ) of VIX calculated from the sequence of opening prices of the SPX options used to calculate VIX at settlement. BINARIES Binary options are the latest volatility tools on the horizon. Binary options are a fixed all-or-nothing proposition. and nothing if the VIX closes at or above the strike price at expiration.The Trader’s Survival Guide continued for VIX options. If the VIX closes at a price that is below the strike price on the expiration date. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. At MarketClub. the BVZ call buyer receives nothing. the buyer of a BVZ call receives $100 per contract. The Tuesday before it is the last full day of trading. OF CERTAIN MARKET FACTORS. It looks like a measure of weakness more so than volatility at times and can shrink in the face of unquestionably volatile upward moves. This is particularly true of the volatility measures of currencies and commodities. it can be argued that it tracks actual volatility better (see “Variety of VIX. Because the underlying of commodity volatility products can be sold as easily as it is bought. SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. Only series with non-zero bid prices upon completion of the special SPX opening procedures are used in the SOQ calculation. The BVZ put buyer receives $100 per contract if the VIX settlement price closes below the strike price at expiration. The CBOE is set to roll them out at any time. The traditional VIX declined steadily from the November 2008 S&P low to the March 2009 S&P low despite several sharp upward corrections that were soon reversed. The VIX on commodities and currencies may even be more valuable. Opening prices typically reflect actual trades. forex. at expiration. BVZ is the ticker symbol that will be used. CFTC RULE 4.41 . particularly oil and gold options on volatility. the settlement price of the VIX closes at or above the selected strike price. It is irrelevant how deep-in-the money the options are. TheChicagoSchoolofTrading.com to start your risk-free trial. commodities and precious metals with greater accuracy and confidence: t5SBEF5SJBOHMF5FDIOPMPHZ t4NBSU4DBO t1SFNJVN$IBSUT t%BUB$FOUSBM t8FFLMZ"OBMZTJT7JEFPT t1PSUGPMJP"OBMZTJT t5SBEF4DIPPM t"MFSUT Visit marketclub. The MarketClub Promise. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. ALSO.HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT. 42 FUTURES | Fall Special: The Trader’s Survival Guide 2009 . futures. SUCH AS LACK OF LIQUIDITY. If. Because VIX is based on equities — the underlying of which will always have a long bias — it tends to be negatively correlated with the market. If there is no trade.with objective and unbiased recommendations not available from brokers. Keep your eyes peeled for both the binary options and the sector specific. Tools for the Serious Trader Use Them All at MarketClub Risk-FREE for 30 Days! ! MarketClub gives you everything you need to trade stocks.” page 41). UNLIKE AN ACTUAL PERFORMANCE RECORD. Dan Keegan is an options instructor and head options mentor at www. IF ANY. as it will be a better signal of the risk in an overheated bull market. and the various additional VIX products can be a valuable tool as well even though they are not tradeable to date. SINCE THE TRADES HAVE NOT BEEN EXECUTED. ETFs. Today the only viable volatility tools are VIX futures and options. our mission is to help you become a better trader. the same way risk managers have used the VIX for decades. then the middle of the bid/ask is used. Our passion is creating superior trading tools to help you achieve your goals --  no matter which way the markets move -.com. Traders can use these measures to manage their positions and risk accordingly. INDEXES VIX has been used by market participants for many years as a valuable fear gauge of the market.

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Military planners plan for many possible scenarios and create documentation in the form of manuals that soldiers read and follow. and neither should traders. all of whom have human needs such as eating. These strategies often rely on speedy execution. A trading plan is equivalent to an automated trade system. at least partially. Whether or Go online for Joe not a trading Gelet’s trader profile. etc. is the most robust and sophisticated organization in the world. commonly referred to as a trading strategy. The difference between an amateur and a professional trader is having a robust trading plan. Without rules. traders are destined for failure as they become emotional. like it or not. commonly known as a trading system. to be executed consistently. Strategies also can be enhanced with dynamic allocation and risk management models that model well but depend on constant monitoring if executed manually. USING MATH FIBO LEVEL 1 2 3 5 8 13 21 34 55 89 Every new entry point will add position size based on the Fibonacci sequence. The system doesn’t necessarily have to be automated. particularly in the fast paced world of forex. Some strategies need to be automated. and under stressful conditions.000 soldiers to a foreign country. relaxing. Traders should read “The Art of War” by Sun Tzu for more detail about military strategy. all “system” means is a set of rules that traders follow. in rugged terrain. such as moving 100. quantitative trading systems are simply the automatic execution of a wellplanned trading plan. The military. the more processes that can be automated. strategy is fully FuturesMag. This is particularly true with forex trading. communicating. are trading short-term algorithmic strategies. not while a trader has positions going against him. TRADE 1 2 3 4 5 6 7 8 9 10 FUTURES | Fall Special: The Trader’s Survival Guide 2009 . Military computer systems need to function under heavy fire. The great metaphor for trading is war. sleepy. the more time you will have to look for other opportunities. considers many possible scenarios. in the quiet peace of contemplation. The reason for this is simple and functional: qualified analysts and policy makers shape plans that are executed on a tactical level. Traders need to equip themselves with all the tools to succeed. Forex traders face a plethora of problems when developing and implementing any forex trading system.THE TRADER’S SURVIVAL GUIDE Key to any survival guide for trading is the ability to build and automate a trading system. Trading is a form of economic warfare where the winners go home with resources and the losers are economically killed 44 and left with no resources.com automated is not important. What is important is that it is robust. and greedy. While every strategy does not need to rely on complete automation. Planning and analysis can take weeks or months. The military deals with complex political and logistics issues. washing. is tested in real market conditions and can be executed as planned for. institutional and retail alike. Soldiers should not think about what they are doing. How to build automated systems BY JO E GELET M ore and more traders. hungry.

In other cases. which can be determined by lot sizes. In fact. they are all different. A discretionary system.” which is used by traders to draw retracement levels on charts. this number can then be increased by a multiplier factor.com | Fall Special: The Trader’s Survival Guide 2009 . so any automated system requires correct execution by the trader and an understanding of the markets. by selling into strength and buying into weakness and increasing the lot size as the loss increases. This strategy is a shell. The ultimate trading strategy is a fully automated trading strategy.4050 the EUR/USD dynamically by entering and exiting multiple orders based on a complex order entry algorithm. traders may take a position that EUR/USD is declining. then buy with a 0.” left). For example. If 1 = 0. it does the opposite. It can be mixed or utilize discretionary input. you end up with a profitable trade than can be completely automated.4300 1. Euro spot (60-minute) Buy 1 Buy 2 Buy 3 Buy 5 Buy 8 08/16 08/17 08/18 1.4150 1. The eFibo strategy has a basic indicator that determines trend or countertrend.8 lots per trade. for lot sizing. which would meet our conservative criteria.4200 1.000 account. In trending mode. In the case of Meta Trader 4. by our fifth trade we would use only 0. The higher the range. we could divide our account using a Fibonacci based model (see “Using math. but it could be as high as 30%: 172 * 20% (+172) = 206. In the end of this article. TRADING CONDITIONS Automated systems development is very dependent on the broker you work with. Our total pip range. that can be modified or used in multiple setups. Next we determine how many levels deep we want to trade. Some systems take support and resistance levels from published sources and use this for entry and exit points. A forex system does not necessarily have to be fully automated. each broker may have his own settings that will make the MT4 implementation slightly different.000) lots allowed. HOW TO CREATE A SYSTEM First.1.25% stop and a 2% profit target. For example. if the EUR/USD increases by 1% (roughly 100 pips). you must find rules you want to follow. a trading plan should be described so that any trader should be able to follow it. Our assumption is that the pip volatility of the EUR/USD will not be greater than 206. Finding the exact optimal setting is impossible because it is not possible to know how volatile the market will be tomorrow (even if using implied volatility) but you can set your strategy to match recent volatility to distinguish significant movement from noise. It isn’t enough to say that one is better than the other. there are limits on how close a stop loss can be placed to a pending order. If the highest range for the past three trading sessions on EUR/USD is 172 (1.4290 – 1. can also be executed by an automated algorithm. eFibo adds lot sizes as the profit increases. A system should be comprised of several components: • Indicator or suite of indicators that will determine buy/sell levels • Exit strategy and trade management strategy • Risk management that both manages the individual risk of each trade and the overall risk of the account. ELITE E-FIBO TRADER Fibonacci is a naturally occurring number also known as the “Golden Ratio.4100 1. not necessarily based on the charts. some of the best systems are a mix of discretionary and systematic. The rules must be based on quantifiable variables.4250 1. we provide a fully automated “expert advisor” trading strategy for download and use on the Meta Trader 4 platform.Similar to military instruction manuals. and load a system that will sell SCALED ENTRY By entering the market on a scaled order increasing your lot sizes at each predetermined entry point. the lower the chance your orders will quickly become too large. 20% is a good number. that means we will buy at an initial level counter to the trend and add positions based on the Fibonacci sequence. A system is a set of rules that can be executed by an automated algorithmic trade robot. It can be used as an order entry technique for either a trending or counter trending strategy. First a trader needs to determine levels for each new order after the initial position is entered in either a simple trend or countertrend strategy. with mini ($10. FOREX DAY-TRADING SYSTEMS Traders must distinguish between types of systems. In countertrend mode. where a trader takes a fundamental position on the market. There isn’t any intelligent trading system that is publicly known. not just the plan’s author. 206 divided 45 futuresmag. This can be done by analyzing what is the highest high-low range for the past three trading sessions. timing entries and exits. and as is the case with the eFibo strategy. In countertrend mode. or it can be executed by a human. or template system. Any entry order should have an exit rule attached to it. Let’s stick with a conservative example that we do not want to use leverage. which will allow for a larger range in case there is some news or event. and then adding 20%. If we have a $100.4118 = 172).

We will be stopped out before this profit target is reached with a small profit or about flat. Normally.200 in profit is reached. or the target will be reached. The exit strategy for eFibo is simple. This would be difficult to do manually. How we determine trend or countertrend can be based on two indicators as filters. but is possible using an expert advisor (EA). Joe Gelet is president of Elite E Services. or the trader can make the decision to buy or sell himself based on a fundamental view of the market. Visit Your DAILY Futures Resource: 46 FUTURES | Fall Special: The Trader’s Survival Guide 2009 . He has been trading forex since 2001 and programming forex systems since 2005.2 pips. That means we enter a new trade every 41. A total trade take profit should be established. and use will quickly teach traders what is the best amount to seek for profit. The trending module is the same but in reverse. short EUR/USD. we would sell x lots every 41. An example of this would be to execute it: long on GBP/USD. in addition to acting as a partial hedge. an EA will trade the time frame of the chart that it is loaded onto. as opposed to a single buy/sell trade.com/downloads and other systems can be downloaded free at the Elite e Services forum. so in this example 20. This is one of our most significant parameters (see “Scaled entry”). This strategy can be found at futuresmag. whereas with the countertrend module we would buy x lots every 41. This reduces the chance that eFibo will be loaded in the wrong direction of the market. which will close the entire trade when $5. But since eFibo only trades off price. The ability to automate this strategy is necessary to execute properly.2 pips. Finally.eesfx. that means if the EUR/USD is going down. optimization. a company that develops quantitative systems for the forex market. an automated system that can be loaded on any chart and traded accordingly. no system picks absolute bottoms so a countertrend model will select a level where the market could be expected to correct and add to the position up to a reasonable risk management point as determined by our pip range. long EUR/GBP.com. a red flag to many. is 41. The eFibo money management system will increase trading profits and reduce risks regardless of market direction. we would add to a long position based on the Fibonacci sequence every time we breach that level.6 pips on each trade. it can be loaded on any chart.The Trader’s Survival Guide continued by five which is the maximum level we want to trade. Strategy testing. eFibo can be used on multiple pairs at the same time to maximize results. In our countertrend model.2 pips. while also watching multiple markets to find more opportunities. which includes a manual and sample uses: http://efibo. While technically this is adding to a losing position. a stop loss is placed on each trade that is one half of the pip level.2.

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“artificial intelligence” is a tainted phrase. In addition. In this. or the simplest kind of feed forward neural network (see “Perceptron simplified. If the network failed. They made them the heart of the system. W1.i. possessing weights based on their importance. W1 W2 W3 fier. Finally. The neuron is the basic structural unit of a neural network. It is now 20 years since the first neural network boom started. another would apply only genetic programming. fuzzy logic and chaos theory. genetic algorithms and machine learning bloomed. During the mid 1990s. but other advanced technologies such as genetic algorithms. the weighted inputs are summed and output is based on a threshold function sent to every neuron downstream. caused them to fall out of favor. Neural networks were the new buzzword in trading. technology and best practices are finally starting to catch up to the original promise. we see that for most of the period 2001-06. the first of a multi-part series on artificial intelligence’s comeback. With only a few exceptions. this first boom period was not a success. With a real neuron. such as how neural networks start from random weights and produce different results each time you train them. and while artificial intelligence is not a magic bullet. these technologies were taken in isolation. Work on neural networks was started in the 1940s and was followed in 1957 by the advent of Frank Rosenblatt’s “Perceptron. However. For example. the neuron fires and triggers all of its outputs. and nearly all large traders and institutions invested heavily in this technology. we’ll overview past attempts and examine why this comeback may be different. and they are making a comeback. There are individual types of networks and related methods such as kernel regression. it is now a reasonable addition to any trader’s toolbox. W2 and W3 are the varying weights in the model. RUGGIERO JR. scholars wrote few articles that applied a. 2) Unique technical factors. The present trend involves integrating multiple technologies. A BRIEF HISTORY Neural network technology takes its cue from the human brain by emulating its structure. machine rule induction. M any segments of the field of study involving artificial intelligence have found their way into the trading industry today.” which was a linear classi- PERCEPTRON SIMPLIFIED The original Perceptron received three inputs and generated a single output. Now. A neuron receives any number of inputs. Most of the trading strategies developed did not hold up in the future. The influx of these tools began in force with the 1990s. During the first two boom periods.” above). not just neural networks. If the neuron receives enough signals. methods to trading. If we review the professional journals in this field. Artificial intelligence: A comeback story BY MURRAY A.TECHNOLOGY & TRADING For many traders whose careers stretch through the 1990s. there are several different types of genetic algorithms and machine induction. The primary reasons were: 1) Analysts tried to make neural networks and other artificial intelligent methods do too much. academic research in this area is booming once again. so did the system. one developer would focus on neural networks. all of the impulses 48 FUTURES | October 2009 .

7. In 1986.com | October 2009 49 . The goal of machine learning is for the neural network to learn the training set well and produce good answers on new cases that have never been seen before.” below). Create new chromosomes by mating two chromosomes. 4. many analysts tried to predict things such as percent price change five bars in the future with neural networks. They tried to predict market turning points and used simple rules to trade that were 100% dependent on the neural network’s performance. They can be used to select input parameters for neural networks. This is how the original Perceptron worked and this type of neural network is most often used in financial analysis. the value of each gene is called an allele. If a stopping number of generations is reached. This approach was doomed to failure. develop portfolios and asset class models or composite indexes. The most common functions are the “Sigmoid. a paper was presented on an algorithm called “back propagation. Neural networks represent a branch of computing science called machine learning. Using the encoding. futuresmag. Neural networks are just a fancy type of non-linear regression and need to be viewed in that way. perhaps the more significant evolution is occurring in the flesh and blood “neural networks” that are employing the models — that is.” announcing the discovery of a method allowing a network to learn to discriminate between not linearly separable classes. Delete a member of the population that is less fit than the new chromosome and insert the new chromosome into the population. two-point and uniform crossovers: s One-point crossover: Randomly select two adjacent genes on the chromo- stePPING UP IN tHe GeNe POOL 1. Although this system worked well for simple problems. develop a fitness function for use in evaluating each chromosome’s value in solving a given problem. We select parents randomly but are biased by their fitness. SURVIVAL IS GENETIC Genetic algorithms are an optimization tool loosely based on natural selection. These mimic real-life scenarios but are sometimes difficult to model. There are three main components of a genetic algorithm: A way to describe PICK AND CHOOse This table depicts "exclusive/or" problems. beyond the technology. and are a simple but powerful tool for evolving rules to create artificial traders. Recombining is referred to as crossover. dissertation at Harvard University. which was a generalization of the least mean squares (LMS) rule. The exclusive/or problem is a simple real-world problem. Neural networks are not magic. Evaluate the new chromosome. which ranges from -1 to 1. using non-linear threshold. the credit for inventing back propagation goes to Paul Werbos. 3. and the hyperbolic tangent.are passed along until the output layer is reached and the output signals are translated into real work information. Initialize a population of chromosomes. There are three popular types of crossovers namely. applications learn via a teacher and compare the output with the current weights to produce the answer. The position of a gene on a given chromosome is called the locus. 2. all inputs and target outputs need to be mapped into the appropriate range when using these types of networks. While the 1986 paper has been credited with popularizing the concept. Input1 T T F F Input 2 T F T F Result F T T F the problem in terms of a genetic code. each being slightly different than its parent and a method to evaluate the “goodness” of each of the offspring. Evaluate each chromosome in the population. then return the best chromosome(s) or otherwise return to step 4. the human traders. activation functions (see “A simple propagation”). 5. The back propagation algorithm consists of a multi-layer Perceptron. Genetic algorithms also are useful for developing rules for integrating multiple system components and indicators. namely supervised and unsupervised learning.” right). For example. This is done by mutating and recombining two parents to form two children. During the first neural network boom. it is possible to go shopping or to the movies. The mapping range used is based on function. the first of which in solving a problem using genetic algorithms is to encode the problem into a chromosome (see “Stepping up in the gene pool. 8.D. who presented the techniques in his 1974 Ph. which includes two major branches. The method was called the Backward Propagation of Errors. Encode the problem into chromosomes. sort of a DNA chromosome. In supervised learning. or time is up. The calculated value is compared to the actual value and the weights are adjusted to minimize the error across the complete training set. 6. However. There are eight steps involved in a genetic solution.” which ranges from 0 to 1. it was demonstrated in 1969 that non-linear classifications called “exclusive/or” problems were impossible to solve. Chromosomes are made up of functional blocks called genes. one-point. a way to simulate evolution by creating offspring of the chromosomes. but it is not possible to do both at the same time (see “Pick and choose. Because these functions are used in back propagation. The original Perceptron could not resolve this simple issue because it was only able to process linear problems.

defining the schemata requires three symbols 0. It is also useful in finding solutions A sIMPLE PROPAGATION This table depicts simple one. schema 1 is a template requiring genes 1. 1 and * where 0 and 1 are just binary digits and * means that the value for that particular gene is irrelevant (see “Scheming ahead. it is a machine-learning technique used to optimize a population of computer programs according to a fitness landscape determined by a program’s ability to perform a given computational task. s The chromosome for the above rule is: 1. For example. Let’s suppose that we have a population of 100 chromosomes. as well as the conjunctive operators (“and” or “or”). 3. the more easily it can get disturbed by a crossover. then buy at the open and exit five days later.Technology & Trading continued In the above. One important concept of genetic algorithms is called schemata. we assign an integer number to each technical indicator we would like to use. 2.and two-point crossovers. It is a specialization of genetic algorithms wherein each individual is a computer program. such as a program that drives a car. Schemata also affect crossovers. Place order could be a 1 for a buy and -1 for a sell. Slow K = 2. Hence. The second child will be the reverse using the left-hand side of parent one. and 30 of them fit schema 1 and 20 fit schema 2. Hence. The first type is where no ideal solution exists. It is much more powerful than GA as its output is another computer program. Here is how the following rule can be encoded: s If the nine-period RSI is greater than 30 and the nine-period RSI one day ago is less than 30.1. 6 to be 1. instead of simple binary numbers.” “trigger. Because genetic algorithms can be used for other things like evolving trading rules. for example: (Indicator(Length) > Trigger) AND (Indicator(Length)[1] < Trigger) THEN Place order at open and exit N days later.30. The average fitness of the population is 0.75 and that of schema 2 is 0. plus many other variables. schema 1 will have an exponentially increased priority in subsequent generations of reproduction when compared to schema 2.” “length. The trigger is a simple real number. schema 1 has a longer defining length.9. etc. Some genetic algorithms occasionally clone some genes of the fit members to produce children. in these cases. In our example. Our sample chromosome fits both schemata but this is not always the case. To encode this rule.50. it is considered the beginning of computer programs that program themselves. When conducting crossovers when the genes of the chromosomes are real numbers or discrete values. while that of a genetic algorithm is simply a quantity. Some solutions might drive safely at the expense of time. For example. s Uniform crossover: Randomly exchange genes between the two parents based on some crossover probability. Hence.5 GENETIC PROGRAMMING Genetic programming is an evolutionary algorithm-based methodology that uses biological evolution to find computer programs that perform a userdefined task. ONE-POINT 0 1 0 1 1 1 Parent 1 1 0 1 0 0 1 Parent 2 0 1 0 0 0 1 Child 1 1 0 1 1 1 1 Child 2 Cuts 1 0 1 0 0 1 Parent 2 1 0 0 1 1 1 Child 1 0 1 1 0 0 1 Child 2 sCHEMING AHEAD SCHEMA 1 1 1 0 1 1 chromosome 1 0 1 * * 1 Schema 1 * * * 0 1 * Schema 2 Sample some of a parent and sever the link between the pair. The length of a schema is the distance between the innermost and outermost 0 and 1. there are schemata that cannot be combined without disrupting them using either a one-point or two-point crossover. we need to develop a general form for our rules. suppose we want to develop trading rules using genetic algorithms. while others might drive fast at a high safety risk. Create one child right-hand side of parent two. It refers to similar templates of chromosomes.30.1. driving a car can mean making compromises between speed versus safety. Do this to both parents.” left).375. after we have selected the genes that will be affected by the crossover.” “place order” and “N” will be coded into our genetic algorithm. you must encode the trading rules into these genes. For example: the relative strength index = 1. Different crossovers also have different properties on how they affect combining schemata. Now suppose that the average fitness of chromosomes belonging to schema 1 is 0. we develop other operators to combine them rather than just switching them. N is the number of days to hold the position. First. Hence. The longer a schema is. 50 FUTURES | October 2009 TWO-POINT 0 1 0 1 1 1 Parent 1 . Schema 2 requires a 0 in gene 4 and a 1 in gene 5. s Two-point crossover: They are similar to the one-point method except two cuts are made in the parents and the genes between those cuts are exchanged to produce children. While working with the binary genes. Another benefit is it works best for several types of problems.9. For example. We also could have encoded the greaterthan or less-than signs. “indicator.

go to the website www. Also. His firm. if you had a joint account with another person. it advises you of your right to either participate in or exclude yourself from this class action. This means that if one component of the system fails — for example. Master File No. or (2) Opt Out: You have the right. such as on modern aircraft where if the network fails. YOU WILL NOT BE ABLE TO PARTICIPATE IN THE LITIGATION AND YOU WILL NOT BE BOUND BY ORDERS OF THE COURT. Each purchased. between May 9. In our next article. or that the class will recover any amount. which is the combination of hints from a domain expert with the power of genetic programming. Ruggiero Associates. IF YOU CHOOSE TO EXCLUDE YOURSELF FROM THE CLASS. In the previous car example. He is the author of "Cybernetic Trading Strategies" (Wiley). Suite 501 New York. But you can if you want to. How Do I Know if I Am a Class Member? The certified class includes all persons who purchased. One of the issues with genetic programming is whether non-guided searching of solutions leads to curvefitted solutions. if you choose. Esq. a June 2005 futures contract in order to liquidate a short position. between May 9. there are even multiprocessor boards. should you choose. This concept is not new or unique and is at work in many applications.-based methods must be system fault tolerant. Who Are the Parties to this Class Action? The named plaintiffs in the Action are Joseph Kohen. a June 2005 10-year Treasury note futures contract (“June 2005 futures contract”) in order to liquidate a short position. District Court for the Northern District of Illinois. In addition. The key is developing hybrid solutions combining multiple technologies into this new class of trading techniques. New solutions will combine classic technical analysis with pattern recog- nition technology and use advance walk forward technology along with neural nets and kernel regression. 2009. we have learned from our past mistakes and realize that signal processing type solutions to the market don’t work. to exclude yourself from this class action. New York 10006 Do I Need to Hire My Own Lawyer? You do not have to hire your own lawyer. WHY THIS TIME IS DIFFERENT During the first neural network boom. the plane doesn’t immediately crash. pending in the U. Defendants vigorously deny these claims. 2005 and June 30. include the names of all account holders. What Is This Lawsuit About? Plaintiffs claim that defendants manipulated the price of the June 2005 futures contract during the Class Period in alleged violation of the Commodity Exchange Act (“CEA”). Your request for exclusion must be mailed to: Christopher McGrath.i. LLC. Besides. is a consultant. § 1 et seq. YOU WILL BE BOUND BY ANY RESOLUTION OF YOUR CLAIMS OR JUDGMENT IN THIS LITIGATION. you will be able to bring a separate case at your own expense. Any a. develops market timing systems. 2005 Inclusive In Order to Liquidate A Short Position Your Rights May Be Affected and You May Be Entitled To A Benefit Notice of Class Action and Right to Opt Out Purpose: This is intended to provide notice to members of a class cetified in a lawsuit titled Kohen et al. Developing preprocessing for advance technology solutions requires a deep understanding of the markets. computers ran 200 times slower than present machines. Excluded from the class are the defendants Pacific Investment Management Company LLC (“PIMCO”). Hershey and Breakwater Trading LLC brought this as a class action to assert not only their own individual claims. WHETHER FAVORABLE OR UNFAVORABLE TO PLAINTIFFS AND THE CLASS. you will be included in and bound by any resolution of the claims. v.com | October 2009 51 . we will examine current research more closely and show a real world example of using advance technologies in trading. and any affiliated or associated parties. whether favorable or unfavorable to Plaintiffs and the Class. we have now begun to incorporate tools like neural networks into applications where failure of the artificial intelligent methods does not mean that you will lose money trading. This Notice does not imply that the Court has found that the defendants violated the law. Another field in genetic algorithms is the grammatical evolution.. while it will find a totally different solution for a rough unpaved road. You are requested to supply the following information with your opt out notice: a statement that you wish to be excluded and your name and address. Richard Hershey and Breakwater Trading. IF YOU DO NOT TIMELY SUBMIT A WRITTEN NOTICE TO OPT OUT OF THE CLASS. This is an exciting area of research in trading and advance technologies.where the variables are constantly changing. due to the increase in computer power. 05 C 4681 (RG). Mr. By remaining in the class. and have that lawyer make an appearance on your behalf. Pimco et al. Follow the steps listed below to exclude yourself. inclusive (the “Class Period”). Visit Your DAILY Futures Resource: If You Purchased a June 2005 Ten Year Treasury Note Futures Contract Between May 9.com or call (212) 608-1900 futuresmag. 2005 and June 21. the neural network predictions degrade to the same predictive power as current price change — then the system does not fail. you have the following two options: (1) Remain in the Case: If you do nothing. 2005. In addition. the program will find one solution for a smooth concrete highway. If you are a member of the class. as amended. 7 U. The Court has not ruled on the merits of the claims against or the defenses asserted by the defendants. Murray A.S. you will remain in the class. PIMCO Funds. Ruggiero Jr. but also to represent a class of persons who have similar claims. E-mail him at ruggieroassoc@aol. For more information.com. with which hundreds of nets can be traded at once if the software supports these boards. If you exclude yourself.S. Lovell Stewart Halebian LLP 61 Broadway. 2005 and June 21.C. The issues created by having to train multiple neural networks and average their results in 1990 are acceptable today. at your own cost.pimcocommoditieslitigation. 2005. What Steps Should I Take If I Want to Opt Out? The Court will exclude you from the Class only if you make a written request for exclusion which is mailed to the address below and received by December 1. What Are My Options? If you are a class member. The hints guide solutions based on expert knowledge.

as they are looking to provide diversification in styles. we look at not only recent performance but also overall performance and the manager’s general approach to trading. While acknowledging that raising FuturesMag. the going has been much tougher in 2009. one of the best years in decades for managed futures programs. We would like to thank all the managers who sent us their documentation. as was the case with equities and convergent hedge fund strategies in 2008. The program looks for the second derivative FUTURES | October 2009 . “Closing positions every night makes you a more disciplined trader. according to the Barclay Hedge database.” DeVore says. he noticed a desire among investors for short-term low risk strategies. He would go on to run his own money 52 J management firm and to manage institutional portfolios for Deutsche Bank. DeVore.” He describes his methodology as momentum with a counter trend element. which he says is the key to trading. describes himself as extremely disciplined. Some previous “Hot New CTA” profiles have gone on to great success and some have slipped into obscurity. When reviewing candidates. Ascendant: Rising above the crowd acques DeVore has spent the majority of his adult life in the money management business and the Ascendant Asset Advisors’ JLD Managed Futures Trading program.” he says.” DeVore says. While working as an investment advisor.MANAGED MONEY After a strong year in 2008. “Clients were looking for a program that would get them out at the end of the night. We will do this again next year. so look for our announcements. but most managers gave back open equity from established positions in the first quarter and have been chopping around ever since. we favor managers who refrain from taking allocations from futures commission merchants (FCMs) or introducing brokers who charge added management fees or exorbitant execution fees. Emerging managers. managed futures programs have struggled in 2009. “I am looking for extremes throughout the day. but a review of new talent. launched in June 2008. however. This year we again looked at For contact info where a manager’s allocations on these CTAs.com money with short track records is extremely difficult. C O L L I N S T his is the 20th year Futures has profiled emerging commodity trading advisors (CTAs) and it has been an interesting and tough year. Here are a couple of managers to tab for the future. DeVore went to work at RNC Capital Management after a short stint in the oil business after graduating from the University of California at Davis. The returns have not been terrible. “Trading futures is the perfect forum for someone with my personality. More emerging managers lost money than made money in 2009. This is not an endorsement. came from and fee structure. tend to be non-correlated to established CTAs. is the result of lessons learned along the way. After 2008. Hot New CTAs: Two programs to watch BY D A N I E L P . go to FuturesMag. a wrestler in college and a competitive athlete throughout his life.com.

but it is going up at a 15. and it applies a statistical model to all the markets. tals. Applying both the mean reversion and trend following approach to many markets means that the program will. “I lean to the short side.0% those changes and buy or sell based on that. he will cover it with options. The program is up 54. 5. That is the danger zone for me. he may just find a short-term correction in a medium-term trend that lasts a couple of bars. It allows people to look at the num1000 bers. Most of the time the market moves up more than down. “We want the portfolio to be diversified by time horizon. Numbers applies its mean reversion and trend following strategies to interest rates. In some cases the ramp flattens out and the ball keeps going. but on adding diversification. He rarely carries a trade overnight and if he does. we have 50 or 60 data series we study.76% ently depending on which one is giving YTD: 31. five. “If I feel the trend for the day where I think a particular move within is up. volume.” says Numbers CEO Bertrand Savatier.” The different time horizons are not based so much on what works in the markets.” 100% in a little over a year and 31. That is where stops and money management come in.” DeVore says.0% tion of the change is going up.0% od to the E-mini S&P and -5. Worst drawdown: -9.” he says.48 of trend throughout the day.of price and volume. “I Source: Barclay Hedge put together a lot of programs that identify when those changes are Money under management: $1. Everything is modeled in this highly systematic approach. “[For] each instrument. have opposing positions in certain markets.51% since its February 2008 launch with a worst drawdown of 6. “The mean reverting is one algorithm that applies to all markets. In the portfolio structure we try and diversify the time horizon. “For example.” Savatier says.” When the acceleration of those indicaDeVore also will go into the day with tors decrease.0% skate board ramp. then the mean reverting can reinforce the position in the direction of the middle term trend against the short-term trend. “In mean reverting we look at two trends that are completely independent of the trend following model. They are weighted differAugust return: -1. “Finally being 2000 down 7% in July was great for marketing. trend following.55% rate of change of volume and direction Sharpe ratio: 3. which is the acceleration of those ASCENDANT ASSET ADVISORS indicators.88. It was good that I 1500 had the down side. I see more looks based on my acceleration and velocity model. it applies a fundamental mean reversion and trend following approach to commodities as well as a strategy to trade calendar spreads. I am looking for 10. at times. It is basically a choice of portfolio construction. Dec-08 Jun-08 Jun-09 He has been so consistently profitable that he says his July drawdown was beneficial 2500 because it assured folks the system was real. The average duration of 500 a trade in the program is 17 minutes. second derivative of price and volume. The direcROR VAMI 20. he looks to enter a posia directional bias based on fundamention opposite the medium-term trend.com | October 2009 . stock indexes work on a five-day trend duration whereas currencies work on a 15-day trend duration. 53 futuresmag.” Savatier says.6 million taking place.” Savatier says. The program is up more than won’t give me more shorts than longs.0% Nasdaq. It could reinforce positions within the trend.0% slower rate. Numbers applies different time horizons to different sectors. That bias may help him on his “I am looking at the second derivative exits but won’t dictate what trades he of all those indicators to come up with will take.” DeVore says.” DeVore says. but also trades the Treasury complex and occasionally the euro currency.” he says. currencies and stock indexes. In addition to the 11 independent sub portfolios.and 10-minyear-to-date through August after its ute charts to pinpoint changes in the first sizable drawdown (7. If there is a correction within the middle-term trend.08% me the most indication: price.26% and a Sharpe ratio of 1.93%) in July.08% He looks at three-. “If I am in the trade long usually it is a mistake. “It is kind of like a 25. statistical and spreading strategies. While he is looking for reversals.0% He mainly applies this meth0. but they all work together to produce solid riskadjusted returns. It combines mean reversion. If that is the case. I will try and be more long than short but it doesn’t mean the set ups the day has exhausted itself. But the short-term nature of the program allows him a lot of looks and his disciplined approach keeps him from hanging on to a losing proposition. Numbers: It’s all about profits T rying to describe the methodology of Numbers SA’s Global Diversified Futures program is difficult as there are many elements.

even with the underlying approach to trading. If you look at very 0 different sources — including fundamental analysis — then at some point you will be different. The short-term quantitative program finished the year up 15. LAST YEAR’S PICKS Advisor MAD Group Inv.57% 0.4% through July.” Savatier says of 1200 their statistical model.88 “When trading calendar spreads.05%. it is difficult to add 800 diversification because even 600 if the algorithm looks very 400 different.34% 5.0% purely fundamental.” Savatier says. MAD Group Investments Discretionary CTA MAD Group Investments continued its strong performance in the last quarter of 2008.26% spread in front of the commodity rolls.72% -5. Even so.74%.60 0.1 millioin 6. It is why they also Aug-08 Feb-08 Feb-09 include a statistical model applied to all markets. Numbers will ROR VAMI assign values for fundamen10. Creating numeror against the commodity funds. they tend to react the same way in the same 200 situation.72% and 8. Mgmt. 6.68% respectively. part of the proMoney under management: $21 million gram seeks to exploit money flows in the August return: 5. it is not from a disNUMBERS SA cretionary seat of the pants 15.0% perspective.71% commodity sector.21% -8.16 37. we try and take into account the evolution of instruments.79% but has struggled so far in 2009.48% in its aggressive program and 22. More disappointing perhaps is this year’s performance of -6. the program continues to display low volatility and risk. A calendar spread on corn the [contango/backwardation] situation. the program has been positive in each of the last 27 years.41 0. but have performed relatively well in their peer groups.” he says. “The ous non-correlated streams of return is big advantage of this strategy is its nonthe key to Numbers’ complex systematic correlation. The strategy is longYTD: 11.5 million $12.0% systematic fashion. Numbers is different and they appear to have covered all of their bases. In backtests.74% Worst drawdown 27.” But we certainly like it when our Hot New CTAs follow up that distinction with solid performance and are recognized with allocations. They could be trading with is moving. but any option writer that has survived the last 18 months or so with single digit drawdowns is pretty solid. They test intensively to ensure the program will perform in different market environments.” has zero correlation with the way corn Savatier says.0% that are purely technical. very year we profile emerging CTAs we preface the story with the qualification that the feature is “not an endorsement but a review of new talent. though MAD has not added to its funds under management. Sharpe ratio: 1. If they do.” he adds. is strong for an option seller given last year’s environment. Despite being down. -5. but its overall performance for 2008.96% term and does not simply put on a bear Worst drawdown: -6. Then we combine those with models -5. -5.01% 54 FUTURES | October 2009 .85% 6. Note: Numbers through July.0% As if this combining mean Source: Barclay Hedge reversion and trend following is not complex enough.49% 26. Crescent Bay Capital Management Option seller Crescent Bay dropped more than 20% from when we spoke to them.92% -25.56% in its standard program. finishing the year up 70.4% -6. -10. Both programs are up through July 2009 despite the tougher environment.42% 9. L1 Partners Crescent Bay Cap. “We have some models that are 0. “If you trade a pure trend-following 1000 system.Managed Money continued While they look at fundamentals. Last year’s HNC scorecard E L1 Partners Apparently Futures was not the only one looking at L1 Partners last fall as its money under management more than tripled in the last half of 2008. Crescent was hurt with upside volatility in 2009. MUM August ‘08 MUM August ‘09 2009 YTD returns $1. “It is a simple algorithm 1600 that is placed on different 1400 markets.7 million $7 million $ 2 million $26 million $1.46% Compound annual ROR Sharpe ratio ROR last 12 months 27. Two of the three managers we profiled are down for the last 12 months. they are not resting on their laurels. Savatier says they are looking to add a currency overlay based on the carry trade. expect the new model to be tested in every possible way.0% tal inputs and work that into the program in a completely 5.

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ed to shift. In his new effort he uses But he realized his focus needa more scientific approach. clearly Mint was the classic trend folriding the winners is good.” ment system rather than a trendMatthews.” Matthews says. HOLLOWAY/GETTY IMAGES FOR FUTURES MAGAZINE .” Matthews says. Matthews clearly diversification is good. that Mint wasn’t the end and the notion that systems could be developed to predict them. research effort that would eventu“Trend following is a reasonable ally lead to his latest program PJM.” he says. following system. How do I think was not satisfied with knowing about risk in the correct way to trend following worked.com Matthews’ new program minty fresh s emerging commodity trading advisors go. Mint. A 58 FUTURES | October 2009 PHOTOS BY DAVID S. it worked.com FuturesMag.” 3) they are based on limited resources and 4) they are self Matthews has the advantage of the experience and history of organized (there is no central authority setting price).” he says. After operating PJM as to take what I have done at Mint part of global macro hedge fund and say that was good. You will have bubbles and crashes. a researcher by nature. fund empire. equihas always had. “There “The pain that you feel along the way in getting those returns would be no talk about efficient markets and random walks is much lower. so he began a my clients are survivors.6% in its first 12 months.” ter way of doing what I did at Mint. the The program began trading customer funds in August 2008 future is entirely unpredictable. “It really means we can’t posand is up 13. CO L L I N S For more on PJM and its ulcer index go to futuresmag. but challenged lot more that could be done. While he saw this as a major revelation.” returns with less pain that is a better mouse trap. He will take a much four characteristics: 1) markets are made up of heterogeneous larger position for a signal with lower risk as defined by his agents (different traders trading different models with differmodel. of course.” Matthews says. assumptions regarding markets need to be scrapped. why did it that minimizes my risk when I am work? What is it about markets wrong? I built a model around this PETER MATTHEWS that makes trend following work? If concept of picking points to go long I can understand then I can take the next step. few have on its head because it says there is no such thing as investment. which he says means that many much less risk. to create a betor short where the cost of error would be the smallest. ly using stop losses are good. that I had the ability to create something new and better and Controlling risk becomes the most important element of tradshe and I thought we should do it.” the itch to get back in the game. If I can cut down on that chop and get those librium is the rarity. Anything can happen and you need to be on the right side of But in 2002. The model is in all 58 markets it trades all of the time.” to trading. The He deconstructed markets to the basic elements and found size of the position is based on the risk. but with Adaptive System (CAS). Comparing PJM’s performance against Mint’s over the Matthews recognized from his knowledge of scientific same period showed the new program produced similar returns research that these elements are a characteristic of a Complex — a little better than a 20% plus per year average. encouraged by his wife Jackie. which is a risk manageabout Mint in 1980. It kind of solves that problem the CTA industry and normal distributions. Caxton for two years. using what Matthews ing a bias towards long or short is refers to as the statistical approach good too. “She saw that there was a His revelation confirmed that trends exist.” Matthews is the next generation that I know is different from what other says. Matthews. cleartook it independent in 2008.” The most interesting implication is that in a CAS. that ed to know why. I was able Matthews.” anything on Peter Matthews. had those moves to capture excess returns. “How do I have a rule “What I wanted to get at the for getting in and out of markets second time around is. being a founding partner in in what he had been doing all along. “That is ultimately how I developed what I consider the what is exciting about it. the first CTA to reach the $1 billion threshlowing would never be dead because the very nature of [CAS] old and the original program behind the Man guaranteed is such that they will have large standard deviation moves. “It told me that trend follegendary Mint. “In [a CAS]. Matthews. adding. solution to the [CAS] problem but which stands for Peter and Jackie it is not the best solution. He needmake sure that I am a survivor. “It turns the world of investment management people are doing. Not havlowing CTA. “We look at low risk as such a great thing that we should ent knowledge and risk tolerances) 2) they use a feedback do a lot more of it and high risk as such a bad thing that we process (each new price can alter what a trader will do next) should do almost none of it. it gave him comfort is not new to the game. I feel about it today the way I felt next generation of quantitative systems. “That is ing. “I’ve got something that sibly know what is going to happen in the future.Trader Profile BY DA N I E L P .

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the faster price is falling. it’s sufficient to start with three: rate of change. when the momentum indicator reports that prices are moving higher at an exceedingly faster rate. dividing the difference between the two closes by the earlier of the two closes. stochastics and the relative strength index (RSI). THE INDICATORS It seems passe to bother with indicator formulas more than two decades after the advent of modern technical analysis software.com Reading the result of the formula is relatively simple. If you’re new to them. Several tools measure these changes and suggest ways you can position your trading capital to take advantage of those changes. this period’s close is less than the close n periods ago. which measure the velocity of price changes and not necessarily the direction of price changes. go to futuresmag. etc. where RS = Average of 14 days that closed up / Average of 14 days that closed down FUTURES | October 2009 . they often are referred to. The higher the positive value. The relative strength index (RSI) was introduced by J. they are all similar. as oscillators. If the value on the oscillator is above 100%. Here are the formulas: ROC = (close_1 / close_n) * 100 or ROC = ((close_1 – close_n) / close_n) * 100 For more educational articles. day. the stronger the trend. and one of the biggest is this: When a market is moving in a particular direction. do you buy to go with the flow. There are dozens of momentum indi- cators. with minor tweaks or twists. seeing the mechanics behind the squiggly lines on the chart can offer insight that you might not otherwise have. or is it poised to exhaust its momentum and turn or stall? Momentum indicators.FUTURES 101 Momentum analysis assumes the current velocity of price change offers insight into the future direction of price change. Values near zero indicate the market is stagnant. That is. An alternate calculation reports rate of change in percentage terms. week. Welles Wilder in the June 1978 issue of Commodities magazine (now Futures) and was expanded on in Wilder’s book “New Concepts in Technical Trading Systems. However.100 / 1 + RS.com/education. RSI has since become one of the most popular technical indicators in use today. As such. According to Wilder’s original Futures article: RSI = 100 . positive values reflect rising prices and negative values reflect falling prices.) as a percentage of the close a specified number of periods ago. hour. the faster price is rising.” published that same year. For most oscillators. however. FuturesMag. is it more likely to keep moving in that direction. The lower the negative value. HOLTER T rading has many big questions. or do you offset your longs or even sell on the assumption the market can’t maintain such a high rate of change? These indicators are typically displayed as oscillating lines beneath a price chart. The extent to which the reading is higher or lower than 100%. Rate of change (ROC) charts the close of the current period (minute. in general. dare traders to ask themselves that question constantly. If the rate-of-change value is less than 100%. Markets in motion BY JAMES T. Nevertheless. this period’s close is greater than the close n periods ago.

For example. 1200 1100 1000 900 800 700 RSI(14.00 6.00 7. The formulas for a nine-day stochastics oscillator is: Raw K = 100 ((close_1 – low_9) / (high_9 – low_9)). the relative rate of change in Citigroup was nearly off the charts. There are three values for stochastics.00 4. This effectively smoothes the oscillator. Divide the average up close by the average down close to get RS.5 (%K . the market stalled.100 / 1 + 2.5 is a smoothing constant derived from the formula 2 / (Z + 1).15 50 40 30 22 29 06 13 20 27 03 10 17 Oct Nov Dec 01 08 15 22 05 12 2009 26 02 09 23 02 09 16 23 30 13 20 27 04 11 18 Feb Mar Apr May 01 08 15 22 Jun Jul 06 13 20 27 03 10 17 Aug Source: futuresource. and: RSI = 100 .%Dt-1)) Note: 0.C) 70 60 55.25.33.00 ROC(10.4 SPEED KILLS THE TREND In mid-March. closes will be closer to the low of that price range.100 / 3. Stochastics is visually unique from ROC and RSI. It measures a market’s most recent close relative to its price range over a specified period.00 1. developed by George Lane in the 1960s.9 RSI = 100 .95 and the sum of the day’s down closes divided by 14 is 0. Shortly after its ROC almost hit 200.9 RSI = 100 . uses multiple lines to determine momentum.5 (Raw K . and %D is a moving average of %K. day 16. The other values are smoothed versions of Raw K: %K is a moving average of Raw K. closes will be closer to the high of the price range over a recent time period. is calculated by multiplying the previous average up and down closes by 13. if the sum of the day’s up closes divided by 14 is 0. Stochastics. where 2009 Feb Mar Apr May Jun Jul Aug Source: stockcharts. in this case 3. RS is 2.C) 100 27.00 5. Stochastics is based on the idea that as a market tops. adding either the new up close or the new down close.com | October 2009 . the first of which usually is omitted from charts but is necessary to calculate the second and third values.com DIVIDED IT TURNS Divergence between the S&P 500 and its RSI recently foretold two significant reversals in the stock index. you start with 15 days of price data (not just 14 because the first day requires the previous close from which to determine the first up or down close value). It has largely drifted sideways since. CITIGROUP 8.In calculating the index. and as a market bottoms. Raw K is the base of the indicator. and dividing each value by 14.%Kt-1)) %D = %Dt-1 + (0. Do the same with the amounts by which the market closed lower.9.com Close_1 = current period’s close High_9 = nine-day high Low_9 = nine-day low %K = %Kt-1 + (0.00 3.6 RSI = 74.00 2. The formulas for calculating %K and %D are simply exponential moving averfuturesmag. reducing noise. where Z is the number of periods used for smoothing. Add up the amounts by which the market closed higher than the previous day and divide that by 14.38 0 22 29 05 12 20 26 02 09 17 23 02 09 16 23 30 06 13 20 27 04 11 18 26 01 08 15 22 29 06 13 20 27 03 10 17 The RSI value for the next day.

” page 44). momentum oscillators generally work poorly for initiating new positions. if the ROC reading has dropped from 120% to 110%. Overbought means that a particular market has felt a lot of buying pressure recently (see “Speed kills the trend. in a downtrend. CROSSING TO THE OTHER SIDE When the fast stochastic line crossed below the slow stochastic line in early July. is helpful as a divergence indicator. or at least tighten up your trailing stops. as with rate of change. it’s important to keep in mind that just because RSI is overbought or oversold doesn’t mean it will stop being so anytime soon. comes down to the big question — whether that high or low value means a continuation of the trend or that a turn is imminent. 11000 10500 10000 9500 9000 8500 Stochastic(14(1). Still. more useful versions of Raw K. particularly in relation to the slowest line (%D). our website now provides traders with even more timely market information including new daily & weekly reports and trading strategies. but the concept remains the same: The two are smoothed.” above). they are considered relatively reliable indicators for foretelling the end of a trend move. Either way. For example. The interpretation of stochastics generally focuses on the relationships between %K and %D. less noisy and. a potential change in trend is indicated. A cross below suggests a new downtrend is on tap (“Crossing to the other side. In other words. the uptrend should stall or reverse. respectively (see “Divided it turns”).3) 100 75 50 35. One caveat to keep in mind is that even though the direction of the oscillator’s movement may change. If true. Available capital to continue buying may be nearly extinguished. obvious. Keep in mind that while with hindsight clean. In other words. as the RSI value reaches these levels. %D. Its rate of increase. A cross above suggests a bullish move is imminent. has indeed slowed and may indicate that price is primed for an actual turn. the market is still in an uptrend because the percentage is still higher Updated and redesigned. respectively. Likewise. Success.Futures 101 continued than 100%. the trend may remain the same. oversold and divergence. opportunity abounds. the market may be overbought or oversold.72 25 Apr 06 13 20 27 May 04 11 18 26 01 Jun 08 15 22 29 Jul 06 13 20 27 Aug 03 10 17 0 Source: futuresource. That said. %K. presumably.7 29. however. APPLICATION Three terms commonly associated with momentum oscillators are overbought. the RSI value will rise as well. patience and trading with conviction.com Simplify your day with the NEW FuturesMag. Oversold means the opposite: a particular market has experienced considerable selling and is likely to flatten out or reverse. it signaled a quick and deep drop in the soybean market. There are other ways to calculate %K and %D. Visit the NEW FuturesMag. As with RSI and rate of change. Key levels for indicating extreme overbought and oversold conditions are 70 on the high side and 30 on the low side.com! FUTURES | October 2009 . As prices rise during an extended uptrend. the RSI value will tend to drop along with price. It’s just a matter of practice. Markets can remain in either condition for extended periods of time — and often do so. it may be time to take some money off the table. stochastics. crosses the slow line.com ages of Raw K and %K. well-chosen examples can be found. of course. Unlike rate of change — the more basic calculation of which can theoretically escalate to infinity or drop to zero — RSI will always oscillate between 0 and 100. Divergence refers to the indicator making a lower high or a higher low while price continues to rise or fall. if you’re long and you notice a classic RSI divergence on a higher high. When the fast line.

which gives the retail trader more opportunity for success.Book Reviews The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist By Brett N. clarification. He has authored two other books on trading psychology. He explains forex trading in a way that both entertains and educates. such as the tendency for a strong breakout to occur immediately following a tight consolidation. including spotting specific market conditions such as trending. organization.00. Ponsi also lays out specific strategies for trading trending markets. a whole industry is growing up around this concept because many are coming to understand that successful trading is less about the markets themselves and more about how a trader acts and reacts to the markets. It is neither. This book is filled with solid information. You don’t have to read the book from front to back to gain insight for your particular needs. learn. one important difference between trading stocks and trading forex is the forex market is so large that even institutions or governments cannot dramatically influence market movement on any given day. but his writing style makes easy reading of difficult material. Although the book reads with a textbook flow. This is the fundamental premise behind the book. trading. institutions. Ponsi defines forex trading and breaks down its complexity. his writing style makes it a textbook you might have liked when you were in school. all excellent credentials for the author of a book that goes down this heady path. 346 pages ple. which is an incredibly important aspect of successful trading: that you can mentor yourself to success in the financial markets. ested in trading the forex market.00. in clinical psychology. Ponsi’s informative book is helpful to anyone interested in trading forex and suggests trading the forex market is a sensible option in today’s trading world. psychology. Brandon Jones is a writer/editor for www. “The Daily Trading Coach” by Brett Steenbarger quite naturally falls into place with the overall cultural trend and the trend in trading toward psychological self-retraining. In four parts. and he shows how to turn each to the trader’s advantage. A second reason is the Fibonacci ratios are part of the forex “culture” as banks. Steenbarger goes a long way to supporting his premise and helping you remake your trading mindset with problem identification. This difference makes fundamental analysis critical. affectwriting. three lessons are titled “The Importance of Feeling Good. these ratios become a “self-fulfilling prophecy. com and he demonstrates his knowledge as he “cuts up” the technical world of forex into easily digestible chunks. hedge funds. and currency traders rely on them to forecast trends. he is an associate professor at SUNY-Syracuse and he holds a Ph.” Without a doubt. If you falter at times in your trading because of emotional/mental errors. 250 pages REVIEWER: BRANDON JONES Trading volume of approximately $1. 2007 $85. thus.” “Build your Happiness” and “Cultivate the Quiet Mind. The contents of each lesson are easily adapted to how we live our lives.” which makes technical analysis important as well. It also discusses market tendencies associated with these conditions.com. Inc. For example. range-bound and consolidating. the more accepting we become of the notion that we truly can control how we act and react to the world. complete with examples and a resource section to follow up on things you deem particularly helpful. you can simply learn what you need to learn. Forex trading success is found using both in tandem. An interesting sidebar to the book is that Steenbarger writes with an implicit premise that might well be another important key to trading success — better people make better traders. With the simple and non-linear construction of the book. when you need to learn it. For example. His writing clarity. Steenbarger John Wiley & Sons. One might expect a book such as this to be somewhat dense and inaccessible. and practice these life lessons. The book reflects Steenbarger’s extensive background in mental coaching. He primarily approaches these topics from a technical perspective. in the trading world. Each chapter is an indepth explanation of the mental lesson. this book will help you get what you want. which is an excellent primer for the beginning forex trader and a source of trading strategies for both novice and experienced traders.9 trillion per day. this huge market offers tremendous opportunity. The book focuses on the fundamentals of successful trading. he coaches hedge fund traders. Ponsi is the president of FXEducator. and a well-thought-out program for taking control of a trader’s destiny. techniques for trading non-trending markets. and in-depth knowledge make the book a good read for anyone inter- . Open for trading 24 hours per day. One reason is that economies tend to change more slowly and predictably over time as opposed to companies that can fundamentally change on short notice. Specifically.D. and mental exercises. Ponsi explains these forex phenomena (and many others) with brilliant clarity. the forex market is by far the largest and most liquid trading market in the world. Another is that traders need not choose between technical or fundamental analysis. REVIEWER: BRANDON JONES The deeper we move into the 21st century. $45. and teaching. Ed Ponsi opens the door to this market in his book. how we act and react as peoFUTURES | October 2009 Forex Patterns & Probabilities: Trading Strategies for Trending and Range-Bound Markets By Ed Ponsi John Wiley & Sons. many of us could stand to read.

fundamentals have been turned upside down in recent years. but it appears to be taking a longer time period for supply and demand to play out. you must take the fundamentals seriously. the buyer is hoping to make a large enough profit on one of the legs of the straddle (or strangle) to offset the total cost of the combination. FuturesMag.TRADING TECHNIQUES You don’t have to run from the current volatile precious metals markets. The total cost would be $575. Say the underlying asset skyrockets in price. The long strangle is a less expensive version of the long straddle. unfortunately. For example. Whether it gets more expensive or cheaper is irrelevant. this is not a directional play. Both the call and the put would have the same expiration date. Say gold is priced at $950 and you wanted to do a long straddle.” right). If recent injections of capital to handle this historic recession brought on by the credit crisis work. In the case of a long straddle. but. the strategy is the same. Meanwhile. A long strangle has the same concept only it’s cheaper because both the call and the put are bought out of the money. both the call and the put are said to be at the money (ATM) because the strike price and the market price of the underlying commodity are the same. all you want it to do is move far and move fast. This doesn’t mean that fundamentals don’t matter. In either the straddle or the strangle. say you buy a call option for $300 and a put option for $275. Instead you are betting on an increase in volatility. If they don’t work and assets continue to decline. Given that. and it could make any logical market observer start to question his or her sanity. what can a rational metals trader do in the short term? GOING NEUTRAL Today’s crazy and volatile market gives us the opportunity to practice a simple strategy called the long strangle. For the novice trader. a long Find more options strategies at futuresmag. while adversely affecting the other. With this classic options trade. technical considerations tend to be more advantageous in the shortterm. Many fundamentally bad investments have gone up and many fundamentally good investments have gone down.com’s options channel. we can expect a sharp increase in inflation. The long strangle is a market-neutral strategy in that it doesn’t matter which way the price of the underlying commodity moves. The more volatile and extreme the move. Because buying both a call and a put at the money can be expensive. The higher the volatility. metals would be just as volatile.com straddle can be a pricey combination. particularly the out-of-the-money option. As any increase or decrease in the value of the underlying would reward one position. Presume that the price of the underlying asset rises so much that the call option rises to a value of $700 FUTURES | October 2009 . the better (see “Volatile times. You would buy a call option with the strike price of $950 and a put option with the strike price of $950. The call option would gain value while the put would lose value. This is particularly true of precious metals that are used to manage inflation. the long straddle is simply buying a call option and a put option simultaneously in the same market and at the same strike price. you can profit regardless of which way the market moves — as long as it moves! Strangling money out of metals BY PAUL MLADJENOVIC C onsidering the choppy and volatile metals markets that we are experiencing now — and will probably experience for the foreseeable future — it can be tough to gauge which way the market is going. Yes. the higher the premium will be for each option. Fundamentals ultimately win.

com Using the options table for the BDS silver ETF from Aug.2 1. if necessary.8 3. a classic long straddle of a $25 call and a $25 put would set the trader back $540. the current silver market provides an excellent environment. Last Sale 0 0 3 2. Remember though that you will be battling time decay. the longer the time frame of the options being used.43 3.1 4.65 1. In mid-August. TRADE EXAMPLE A simple example of a long strangle on precious metals can demonstrate this concept.4 Vol 0 0 0 0 0 0 0 0 Open Int 0 0 1 21 73 52 62 70 Puts Jan 22. If you buy a $27 call and TABLING OUR OPTIONS DBS (POWERSHARES DB SILVER FUND) Calls Jan 22.9 3. while the put’s value would have soared.05 2. The nearer your option is to expiration.cboe.15 Ask 4. The position can be built eas- VOLATILE TIMES Silver futures continuous (weekly) The chart shows. Because both the call and the put are out of the money. the more value you will lose to time decay and the rate of time decay will increase the closer you are to expiration. 20000 15000 10000 5000 Average True Range(14) 1. Using the options table.15 and the silver ETF DBS was at $25. you aren’t using the same strike price but out-of-the-money strikes for both puts and calls.2 3. However. the more you will pay for them.15 2.3 Vol 0 0 0 0 0 0 0 0 Open Int 10 10 11 10 16 10 0 4 futuresmag. Presume that you cash out both positions. It is more of a pure volatility play because one side will not automatically be in the money.00 Jan 29.8 Ask 1. while the strangle just $2 out of the money would run $360.6 3.5 1. Remember that because you are buying them. In a long strangle.6 2. In addition. the spot silver market was trading at $14.and the put option plummets to the paltry value of $5.4 2 1.95 2.00 Jan 27.5 2.com) shown in “Tabling our options” (below) gives us the farthest expirations available at the moment (January 2010). based on average true range. the cost is from the “ask” column.00 Jan 26.3 2. Of course.3 0 2. For our purposes.4 4.8 2.2 2.00 Jan 26.5 3.35 2 1.0 0.00 Source: www.00 Jan 28.00 Jan 23.04036 1. volatility is not near a peak.00 Jan 25. or theta.00 Jan 25. that silver volatility is high and has had significant moves in both directions. the more you will pay.2 3.31. The options table for DBS (available at www. In this case. it of course would be cheaper than a nine-month window of time. particularly the exchange-traded fund (ETF) that tracks the metal.3 0 0 0 Net 0 0 0 0 0 0 0 0 Bid 1 1. a classic long straddle would mean buying a $25 call and a $25 put. we can see what a particular trade combination would cost.65 1. such a combination would have cost you $540 ($280 for the call plus $260 for the put) not including commissions.00 Jan 24.00 Jan 28. If you choose a threemonth expiration.com | October 2009 .15 1. The closer the strike prices are. Because DBS is priced at about $25. Powershares DB silver.35 1. Keep in mind that the total cost of the call and put combination will be dependent on the strike prices used and the expiration of the options.75 2.00 Jan 27.15 Net 0 0 0 0 0 0 0 0 Bid 4. it’s likely that options issued for March 2010 will be available.35 1.cboe.00 Jan 23.5 5. Now what? You have $705 and your net realized gain becomes $130 ($705 less the original cost of $575). the call would have lost much of its value.00 Jan 24. the combination will be cheaper.8 4. a long strangle will be cheaper because you will be buying out of the money. had the price of the underlying asset fallen significantly.00 Last Sale 0 0 0 3.5 Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug 1998 Source: eSignal 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 ily and. it can be done relatively inexpensively. However. By press time.23.00 Jan 29.

ProsperityNetwork. national seminar leader and author of “Precious Metals Investing for Dummies. Time decay won’t increase in earnest until 30-45 days until expiration so that leaves you with plenty of time (see “Make a move”).22. nine months while the put would expire in only six months. 35.  Interaction with fellow investors.” He edits the Prosperity Alert newsletter available at www. There are variations and you can use your creativity and gear it toward your outlook.  Wealth-building strategies to actually help you profit during. Benefit from professional presentations. If you are slightly more bullish than bearish.00 20. your total cost would only be $360 ($200 for the call and $160 for the put).5 12 27 09 23 07 21 04 18 02 15 29 13 27 10 24 08 22 05 20 02 23 09 23 06 20 04 18 01 15 29 13 27 10 24 Jun Source: eSignal Jul Aug Sep Oct Nov Dec 2009 Feb Mar Apr May Jun Jul Aug REGISTER TODAY AT www.00 Average True Range(14) 1. natural resources investing experts and exhibitors. Keep in mind that the long strangle does not have to be done a certain way.5 1 0. 2009 • S A N F R A N C I S C O M A R R I OT T TO P A N A LY S T S S H A R E T H E I R S E C R E T S With the Federal Reserve running the printing press at full speed and recession spreading all over the globe. Paul Mladjenovic is a CFP.net and his blog is at www. If you bought the $28 call and the $22 put. Hard assets like gold and silver and companies that mine them are your best bet to profit in times like these! THIS FREE CONFERENCE OFFERS:  The hottest investment strategies and trends.00 25. you could certainly use a call that expires in. the crisis.blogspot. investment workshops and panels from top analysts and economic specialists. Ideally you will take profits on this trade well before expiration. Learn first-hand how to protect  Two FREE days of valuable content. say. around the time Theta begins to accelerate. all buzzing about the next hot commodity and investment opportunities! FUTURES | October 2009 . it’s no secret that currencies are in trouble. DBS.com N ov e m b e r 21 .Trading Techniques continued a $23 put.mladjenovic. every dollar you have by strategizing and properly positioning your portfolio.631595 0.00 15.com.HardAssetsSF.00 30. MAKE A MOVE The silver ETF. and after. looks primed for a breakout that could spike volatility and lead to a profitable long straddle or strangle trade. then your total would be $285.

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OF. Japan CPI CONTRACT DATES 1 LTD: BM&F Alcohol OF. Japan Merchandise trade 27 29 Canada PPI. PSI 20 Index (Lisbon) F 17 LTD: CME FTSE 100 (London) F.S. Euronext-Liffe Corn F. U. Live cattle OF. Japan Balance of payments. Germany CPI. 3-Month Eonia (London) F.. Merchandise trade. Real Estate Index F. EuronextLiffe Cocoa F. Germany Employment. OF. No. KRX Currencies (Amsterdam) F. OF. OSE Cash Settled Ethanol F 11 LTD: CME Ethanol F. O. 2 Soybeans F. France Merchandise trade 9 13 France CPI. Live cattle F. Equity Index O. O. Canada Merchandise trade. Japan PPI 8 Australia Employment. E-mini bundle F.000 oz. OF. iTraxx Credit F. No. IDI Index O. Euronext-Liffe One-Month EONIA F. Equities O. OF. Euronext-Liffe Northern Bleached Softwood Kraft Pulp F. Italian Equities O. ICE RBD Palm Oil F. Euro F 10 LTD: Euronext-Liffe Gold F. Germany Merchandise trade 6 Crop Summary. SMIM. Euroyen F. Japan Employment. U. FTSE Eurotop 100 Index. Germany PPI. TGE AEX Index (Amsterdam) F. OF. CPI 15 CPI 16 Cattle on Feed. KCBT Three-Month EURIBOR F.S. Oct. ICE Arabica coffee F 9 LTD: BM&F ID x IGP-M spread F. CME Eurodollar F. ICE White Sugar F. Fixed Income OF. Production index 7 14 Crop Summary. Euronext-Liffe Sugar F 3 LTD: CBOT Alcohol F. Euroyen-LIBOR F. Dollar F.OF. Mini Live cattle F. Soybean meal F. E-mini Eurodollar F. ICE Mini IGP-M F. OF. ICE Canada OES O. Japan Production index Canada Production index. MGEX Volatility Index F. Dollar Swapnote (London) O. France PPI.Dateline MC O AT YO B E R MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY 1 5 12 19 26 Australia PPI Holiday 2 Employment. SMI. Eurodollar (London) F. 5-yr. Dollar F. Mini Silver F. OF. 2-yr. Soybean Oil F. & 10-yr. 1-day Interbank Deposits F. SLI O.K. 21-23 23 30 Cotton Ginnings. OF. Equity Index F. Euroyen (London) F. Silver F. Euro Swapnote (London) OF. Feeder cattle OF 8 LTD: Eurex Gold O. Feeder cattle F. Euribor (London) F. 30-Day Federal Funds F. Eurex Soybean Meal F.K.. Soybean Oil F. Germany PPI 21 28 Crop Summary Australia CPI 22 FIA Expo Chicago. Oats F.. OF. LLDPE F. U. Eurex S&P 500 F. White Sugar OF. Corn price based F. 1 Soybeans F. OF. France Production index. U. TGE 2-yr.S. OSM O. & 10-yr. U. KRX Euroswiss (London) F. Mini U. France Balance of payments. Nymex Ethanol Gulf Coast Basis Swap F 12 LTD: ICE Ethanol Los Angeles Basis Swap F 14 LTD: CBOT Ethanol NY Harbor Basis Swap F. & 10-yr. Eurex FTSE 250 (London) F.S. OF. ODX O. MSCI Pan Euro Index FUTURES | October 2009 . Canada CPI Germany Balance of payments 20 Crop Summary. Livestock Slaughter. SMI. OF. 5-yr. PPI. Canada Employment. Australia Merchandise trade-Imports. ICE 5. SLI F. IGP-M F. U. Fixed Income F. KRX Global Bonds F. SMIM. Short Sterling (London) F. DCE Equities F .K. Dollar spread F. Corn F. MSCI Euro Index. OF. Euro Swapnote (London) F 16 LTD: Eurex 2-yr. PPI. Merchandise trade. Japan Employment Cotton Ginnings. Production index. ICE ID x U. ICE 1-Month Eonia (London) F. IPCA F 4 LTD: ICE Corn with financial settlement F. Ethanol Forward Month Swap F. Nymex Euro-Inflation F 15 LTD: BM&F Italian Equities F.OF. OSE Conillon coffee F.K. Australia Merchandise trade-Exports. 5-yr.

Small U. TGE Gulf Coast Gasoline F. Dollar Index OF. F. Japan Balance of payments.S. Canada PPI. Cotton Ginnings. OF options on futures. U.S. Asian Platinum F. 18-21 24 Crop Summary. France Merchandise trade. Tocom Stock O. Non-Target Group Stock (London) O.OF. Gold F. Contracts traded are for current month unless indicated. Nymex Cocoa OF 18 LTD: BM&F U.K. OF. LND last notice day. Aluminum F. Canada Merchandise trade. Eurex Nikkei 225 O . OF. O options. Australia Merchandise trade-Imports. Richards Bay Coal F 23 LTD: Eurex Newcastle Coal F. Tocom Wheat F 25 LTD: Eurex Value Line F. U.S. Check with your broker or the exchange. Reports are U. PPI 10 12 Australia Employment.S. Germany Merchandise trade 3 Crop Summary Crop Summary. ICE S11 Options on Spreads O. U. Nymex Singapore Fuel Oil 380 Swap F. ICE Cotton F. Dollar Index F. Currency F. Heating Oil F. Non-GMO Soybeans F. Brazilian Real-U. Japan CPI.S. Nymex Azuki F. 11 Sugar F. CAC 40 (Paris) F.Dateline continued NOVEMBER MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY 2 9 Germany Production index. Russell 2000 Mini Index F 22 LTD: BM&F Russell 2000 Mini Index OF. Agricultural Indexes F. Gas Oil TAS. reports unless indicated otherwise. Cotton Ginnings Canada Balance of payments. Nymex Colombian Peso-U. Asian Gold F. Asian Palladium F. Uranium F. Production index 6 Employment. Silver F. Holiday 20 27 Livestock Slaughter. Euro Index F. CRB Reuters Index F. Stock (Amsterdam) O. Euronext-Liffe Gas Oil US MM. Japan Production index 17 Crop Summary.K. Wheat OF. Coffee OF. KRX Middle East Sour Crude TAS. U. RN Prime Index F. Dollar-Canadian Dollar F. Holiday 5 Australia Merchandise tradeExports. Nikkei 300 O.. Abbreviations used with contracts: F futures. Kerosene F.S.S. Dollar Index O. Robusta Coffee F 21 LTD: BM&F Russell 1000 Mini F. Cattle on Feed. Nov. Germany PPI Traders Expo Las Vegas. ICE Nikkei 300 F. Eurex Euro Index OF. Euro F.S. Light Sweet Crude Oil OF. Holidays may affect government offices or banks but not trading. PPI. PPI CPI. Gasoline F. France PPI. ICE Arabica Coffee F. KOSTAR F 28 LTD: CBOT 3-yr.S. TGE Natural Gas F 30 LTD: BM&F Palladium F. Target Group Stock (London) O. KCBT KOSPI 200 O.K. France Production index. France Employment. EuronextLiffe Nikkei 225 mini F. Dollar F. Barley OF. NYSE Comp Index OF. KRX Russell 1000 Mini OF. Production index. KCBT European style stock (Paris) O. France CPI Germany Balance of payments 16 23 30 Canada Production index. Sugar #11 F. Cotton OF. Midwest Domestic Hot-Rolled Coil Steel F. Japan Merchandise trade ABOUT THE CALENDAR… Dates are believed to be correct but sometimes do change. Brent Crude Oil F. Dollar F. Sugar #11 OF. Platinum F. Russell 1000 Mini O. Wheat F. Dollar F. Gulf Coast Ultra Low Sulfur Diesel F 29 LTD: CME U. CBOT Ethanol F. MGEX Robusta Coffee F. Japan PPI 13 Merchandise trade. ICE Canada Value Line OF. Canada CPI 19 26 U. Copper F. PJM Electricity F. ICE Stock (Brussels) O. Small NYSE Comp Index F. Nikkei 225 F .K. Nymex Sunflower Seeds F. Wheat OF. OF. Eurex Wheat F. Japanese Yen. Light Sweet Crude Oil F. 5-yr. NYSE Comp Index F. MSB F. Propane F. ICE Soybeans F. FCOJ-A F. Gold F. White Maize F. Tocom Gold OF futuresmag. U. Nymex HOG F. Merchandise trade 4 11 18 25 U. & 10-yr. JSE Coffee F. U. No. LTD last trading day. Germany CPI. U. MGEX Stock F. Russian Export Blend Crude Oil F. Gasoline F. Cotton #2. France Balance of payments. FND first notice day. Russell 2000 Mini O. Robusta Coffee OF. Canada Employment. Robusta coffee F. Treasury Bond F.S. FCOJ-A OF. Raw Silk F. Cocoa F. New York Harbor Ultra Low Sulfur Diesel F. Euro Index OF.S. Japan Employment.com | October 2009 . Rubber F. Nymex Western Barley F 24 LTD: BM&F Feed Wheat OF.

.............10/24 ..............................................................Kerosene F .................................................10/30 .......10/14 .......................................................................................................................S......................000 oz..........................................100 oz...........................11/15 Natural Gas F ...................................- FUTURES | October 2009 .................................................................Sunflower Seeds F.............Euribor (London) F.................................................................................................................................11/29 Corn price based F ...11/29 Platinum F .........Real Estate Index F ............Cotton F ...Euroyen F........................10/3 ...................................................10/30 ............................................10/30 ..................11/29 Dry Whey F ....................10/30 ........................................................10/18 ................................Nikkei 300 O ..................................... Gold F.......Barley OF......10/28 .......10/24 .............................................................Gasoline F ......................................11/28 Asian Platinum F ..................................................................................Robusta coffee F ....10/30 ...............11/27 Oats F ..........Euroyen (London) F .........................10/28 ..................Light Sweet Crude Oil F .............................................................................................................................................................................................11/27 Uranium F .......................................FCOJ-A OF ...................................................... Treasury Bond F ........................................................................................... OF ..10/30 ...10/22 .................Soybean Meal F ......................... OF ...............Asian Platinum F ................................................................Asian Gold F ...................10/3 ..................................10/22 ..................................10/11 .. OF ................................................................................................................................10/16 .............................10/4 ........ OF ....................11/30 3-yr............................................................................................................NYSE Comp Index OF ..............................................................Short Sterling (London) F.................10/16 ........10/28 ............................... Dollar F .................................11/30 Robusta Coffee F.....................................10/8 .............10/28 .............10/15 ...............................................................................Gasoline F ...................................................................................................Gold F ..........................................................................................................................10/18 ......................................................................................................S..............Brazilian Real-U........................................................10/10 ..............................................................................................................11/15 Cocoa OF ............................ OF...................................................................................10/28 . Dollar spread F..11/28 Ethanol F .................................................................................................................10/30 ............................10/11 ...........10/17 ...............................................10/22 ..Ethanol F .............U......... OF ........................................11/14 Soybeans OF .............................................ICE 1-day Interbank Deposits F................................Brazilian Real-U..11/30 Feed Wheat OF ...................................10/18 .....................................................11/30 Gold F .....................................................................................................................1-Month Eonia (London) F..................................................10/15 ..................... OF ........................................................................ Dollar-Canadian Dollar F..................................... OF ...................................10/30 ................ OF.................................... Silver F .........................U..............................................10/14 ......10/14 .....11/23 MGEX Agricultural Indexes F....10/11 ........10/18 ..........S.......................10/30 .................................................................................................................................................. OF.......................10/14 ....................FTSE 100 (London) F............................... 11 Sugar F ......10/15 ...........................................................10/18 ....................................................................10/30 ...............11/29 Nonfat Dry Milk F........Propane F ..........................................10/14 ..............................11/30 Ethanol NY Harbor Basis Swap F .............10/28 ..KCBT European style stock (Paris) O.......................................OF ...............................................Small NYSE Comp Index F .......................11/8 Cotton OF .............11/8 Target Group Stock (London) O .....................11/23 CME Cash-Settled Butter F........................................Brent Crude Oil F ...........................................................11/5 Ethanol Forward Month Swap F............................................................Mini Silver F ....................10/17 .................. Colombian Peso-U..............................10/28 ....................................................11/13 Silver F ...........................11/23 Sugar #11 F...10/29 ...........................................................................................................................................10/30 ......Rubber F..............Euro F .............. Dollar F ......................................................................................................Nikkei 300 F ............................................10/22 .....................................................................................Gas Oil Crack .........................................10/11 ..................................11/9 Colombian Peso-U....11/28 Singapore Fuel Oil 380 Swap F ..........................................................................................10/28 .10/1 ..........OF............Euro-Inflation F ..................................................................10/14 ................................................................................11/20 Gulf Coast Ultra Low Sulfur Diesel F .............Robusta Coffee OF ...........................OF ...........................................................................Light Sweet Crude Oil OF .........................................10/11 .....................11/29 Class IV Milk F...............10/14 ...........Soybeans F....................................................................................Ethanol NY Harbor Basis Swap F ...................................................................................................................................No..............11/16 ODX O..............................................................10/29 ................................................................................10/9 ......................Dateline continued Contract month Last trading day OCT NOV Contract month Last trading day OCT NOV Contract month Last trading day OCT NOV CBOT Alcohol F ...............................Singapore Fuel Oil 380 Swap F .................................................................................11/16 Russell 2000 Mini O .................................................................10/30 .................................10/30 .......................................11/30 Ethanol Gulf Coast Basis Swap F .....................................................Eurodollar F.... & 10-yr..Arabica Coffee F .11/2 Coffee OF ..........................................................10/11 .................10/14 ............. OF ...................................10/17 ..............................11/28 Gulf Coast Gasoline F......11/28 Asian Gold F .......................................11/15 ID x U..............11/29 Northern Bleached Softwood Kraft Pulp F..............................10/24 ........................................ Dollar F.............Russian Export Blend Crude Oil F .......................................................................................10/25 ... Dollar F...10/28 .......................................S.................................................................................Gold F ..................................................................................................................................................Russell 1000 Mini OF ..................... Dollar F..............................Non-Target Group Stock (London) O ......................................... OF.....................................10/30 ...............................................Volatility Index F ...............................................................................Arabica coffee F ..................Euro F ................................................... 5-yr.........................11/30 HOG F..............................................................Stock (Brussels) O .. Midwest Domestic Hot-Rolled Coil Steel F ............................10/30 ...............................................Wheat OF ......10/4 ...........................................................................Nikkei 225 F .........11/16 Russell 2000 Mini Index OF .........S...................10/14 ..................10/29 .........................................................................................11/14 Cocoa OF ...................................................10/9 ..............New York Harbor Ultra Low Sulfur Diesel F .....11/5 E-mini bundle F ...................................10/4 .............................................................................................Asian Palladium F ............. Euro F ..................................................10/15 ............................................................................10/30 ...... Copper F ............10/30 ...........................................................................................................................S...............................................................................10/9 ..........................................BM&F Alcohol OF .................Corn with financial settlement F....................11/30 Euroyen-LIBOR F.................................................... OF ................................................................................................................................................................11/28 Propane F ................U.............11/15 Sugar #16 F ...............................................11/9 White Sugar F ...................................................11/28 PJM Electricity F ............10/14 ...11/23 Nymex Agricultural Indexes F..Wheat F ....... OF..................................................11/30 Ethanol Los Angeles Basis Swap F ........11/20 Heating Oil F ........U..........................................................Light Sweet Crude Oil F ...............10/28 ...................10/30 ...10/30 ...............RN Prime Index F ............................................................................................Russian Export Blend Crude Oil F ..........10/30 .Value Line OF ..........................................Copper F ..10/14 ...............................10/18 ...........................................................................................................................................KOSPI 200 O ................................S..........................................Euro Index OF..................11/30 Raw Silk F .... OF..........S.S11 Options on Spreads O .........Milk F..................Richards Bay Coal F ..............................................10/17 ...........................Stock F .....11/28 Azuki F.....Three-Month EURIBOR F.......................10/18 ............Cotton F ...................11/16 Ethanol Forward Month Swap F...........................10/23 ............................................................................10/30 .............Palladium F ............Brent Crude Oil F .........................................Mini IGP-M F ...................11/9 Eurodollar (London) F.....................11/28 MSB F ................Fixed Income F ........11/28 Asian Palladium F ................................................11/28 New York Harbor Ultra Low Sulfur Diesel F ......10/28 ........................................................................................................................................Wheat OF ..........................................................................................................Aluminum F ......................................................... Midwest Domestic Hot-Rolled Coil Steel F .............................................Cash Settled Ethanol F...........................................................11/16 Wheat OF .................................................10/11 ..........11/30 Brent Crude TAS.....11/30 Non-GMO Soybeans F ...............................11/16 Feeder cattle OF...................................11/29 E-mini Eurodollar F ................................................................10/28 .........S................................Ethanol F .....Japanese Yen...10/30 .........S.........5............................Small U.............RBD Palm Oil F ..11/9 Russell 1000 Mini O ..........Ethanol F ..........................................................................................30-Day Federal Funds F....NYSE Comp Index F ............................................................Mini Gold F ....11/26 Western Barley F ................................ OF......................IPCA F ................................................. OF ..............................................10/30 ..............11/30 Ethanol Gulf Coast Basis Swap F .............OF ..................Aluminum F .................................................................................................10/17 ........................................11/14 Soybean Oil F .........................................11/28 30-Day Federal Funds F............Gasoline F ..................................................................................... Dollar Index OF ............................................................10/30 ..10/14 ............................................................10/12 .........................................................10/25 ...............................................................................10/14 ............................10/17 ............................................10/14 ..............................................................10/28 ..............................................................................- Ethanol Los Angeles Basis Swap F ............................................................................................................Sugar #11 OF .....................................11/20 Light Sweet Crude Oil OF ..................NYSE Comp Index OF ........

............................................................................................................. 5-yr................................................11/16 Euro Index OF...........Volatility Index F ............................................................................................10/25 ....................................................... No..... Dollar Index F ...............................................................2-yr...........................................................................................Russell 2000 Mini Index OF ....................................10/15 ...............................................................................................................................................................Italian Equities F ........................10/30 .......................................................................Equity Index O .................................................................10/30 .................................11/22 S&P 500 F. OF ....Currency F .................................................... 1 Soybeans F ............11/27 Rubber F.............10/10 .................S.............10/21 ..............Equity Index F ..10/15 ...................SMI.........................................................................................................10/10 ................................................................................11/30 OSM O .............KRX 3-Month Eonia (London) F......................11/9 One-Month EONIA F ............................................................................................................................... OF .11/16 Equities O ..........................................................11/1 ID x IGP-M spread F ..................................... 2 Soybeans F ............. Dollar F..........................Equities O ...................................................................11/19 3-Month Eonia (London) F............................................Fixed Income OF ..............................................11/14 OES O .................................10/11 .......................................................................PJM Electricity F ...................................10/14 ....................10/18 .................................................................................................................Global Bonds F ........................10/16 ....................................................S........Gulf Coast Ultra Low Sulfur Diesel F ..........................................................................10/30 .............................. OF .................U..............10/18 .....................................11/26 Mini U............................10/18 ......................................................10/30 ........10/25 ..................... Euro F ...CRB Reuters Index F ..........................................................10/10 ...............................................11/15 Gulf Coast Gasoline F............S.................................................10/1 ........10/18 .........................................................................10/18 .............. SLI O ........................ 5-yr..................10/14 ............................................................................Azuki F...............................................Euronext-Liffe 1-Month Eonia (London) F........................................................................ICE Canada Barley F ...............FTSE Eurotop 100 Index ......S........11/14 Canola OF ................JSE All Constant Month Contracts F ............................................................................................11/21 Soybean meal F ........................................................Russell 2000 Mini Index F ...................................................................10/15 ...............................10/30 .............. 5-yr.............10/29 .................CAC 40 (Paris) F... Dollar F...Cotton #2 ..................................................................................Mini IGP-M F ..............................................AEX Index (Amsterdam) F........................................MSCI Pan Euro Index F ........................11/26 Stock O ..................10/30 .............................Raw Silk F .......Precious Metals F ....Corn OF...............10/14 ..Milling wheat OF ............................10/18 .RBD Palm Oil F .....................................................10/14 ............................................................................11/8 TGE 2-yr......................................................10/17 ...............................................................................................................................11/19 U........10/15 ...........10/25 ..............11/19 KOSPI 200 O .............................10/15 ..........10/10 ....................................................10/18 ............................... SLI O ........................................10/15 .........................Nikkei 225 O ............................................................................................................................... Dollar Index O ..........................................Gold O .............Stock (Brussels) O .10/21 .............................................................................10/10 .........................................No...........................10/10 .....................................................11/15 Nikkei 225 mini F ...................10/15 ....................10/30 .................. Euro Swapnote (London) OF.......................11/21 IDI Index O ..........................................................................Gas Oil US MM....................10/30 ..............................11/8 Gas Oil TAS ...................... Euro Swapnote (London) OF ....One-Month EONIA F ........................................................Newcastle Coal F .Soybean Oil F ........................................10/10 ...................................................................... Dollar Index OF .................................................................Nikkei 225 O ................................................................................................................................................................................................Euroswiss (London) F...U................10/15 ..........................10/28 ...........LLDPE F ........ O........................................................10/21 .......11/1 Robusta Coffee OF ...........10/17 ....................- futuresmag.....................................11/19 OSE Cash Settled Ethanol F...........................................White Maize F..............................Currencies (Amsterdam) F.......................................10/10 ............................................10/18 ................................11/9 OES O ............................................................................................................10/18 .....................................................Gold F .................10/18 ....................................................................................... Dollar Swapnote (London) O........................10/25 .....................10/18 ...........10/10 .................................... SMIM.................S...........................11/30 Heating Oil F ...................Eurodollar (London) F................................11/8 Nikkei 300 O ........................ OF ....Natural Gas F ............... OF.............................Sugar F .......... OF......................................................................................11/15 Italian Equities F .....................................................................IGP-M F ........................................................................10/30 .............................................................Corn F ................................................................11/26 IPCA F ...........................................................................................................................................................................11/13 2-yr............................Russell 1000 Mini F ....................................10/10 ................10/16 .....10/22 .............................................................................................................................................10/18 .................Live cattle F.10/15 ........................................11/16 Equity Index O .............................................10/15 ............. & 10-yr..........................10/14 ...................... OF.............................S........11/30 Rapeseed OF ..........Short Sterling (London) F.............................S..................................................................................................Euro Index OF...............11/8 Middle East Sour Crude TAS.............................................................. OF .........Silver F ................................Equities F ..................................................................................11/30 Mini-Ibovespa F ...........................................................Wheat OF ........... Dollar F ........................................................................................................................................................................................................Euribor (London) F..11/30 U............................................................................................... U...............10/15 ................................10/15 ..........................11/16 Sugar #11 OF ................................................................................................................................10/24 ...............................................10/16 .............................................Coffee OF .......11/14 OSM O .....11/15 Rapeseed Oil OF..............iTraxx Credit F .........................................................................................................................10/14 ....................10/16 ..........................................................................SMI....11/19 Cocoa F .......10/17 .........................Value Line F .10/15 ...................................U..................................................................................10/18 ....................................- ODX O..................................Feeder cattle F ...........................ID x IPCA spread F ......................................11/14 Palladium F ..............................Kerosene F ................................................................10/24 ...................Russell 1000 Mini OF ......................................................................................................................................10/15 ..................................................10/23 .....................................10/17 .......................10/15 ..........................LLDPE F ...........Soybean Oil F ....... OF ....11/14 Eurex 2-yr................................................................................................................................................10/18 ......................... & 10-yr...................10/30 .......................................10/18 ..................................................................................................................Euro-Inflation F ...............11/28 Corn F ....................10/14 .....10/18 .............................................10/24 ............................................11/15 MSCI Euro Index ......11/21 Coffee F ............................................................FCOJ-A OF ........................Dateline continued Contract month Last trading day OCT NOV Contract month Last trading day OCT NOV Contract month Last trading day OCT NOV Gold F ..........10/23 .......................................S......................11/23 Feed Wheat F ..Stock O ..................Gold F ...................10/17 .............................. OF...........................11/14 IBrX-50 F..............10/8 ......................................S............................10/18 ...............................................Northern Bleached Softwood Kraft Pulp F............ SMIM...10/16 ................................................ Dollar F.........................Wheat F ...............10/15 ...........10/18 .11/15 Fixed Income OF ..............DCE Equities F ..............White Sugar OF ........................................... Dollar F .................Corn F .................................................................................................SMI...........Ibovespa F.......... OF .......................................................................................... SMIM................................ Euro Swapnote (London) F ..................11/19 FCOJ-A F ...................10/14 ......11/15 Cotton OF .....................10/17 ......................10/16 ..................................................... SLI F ..10/9 ..........11/23 Gold OF ......10/8 ..................11/28 Tocom Alumunum F................................................10/10 ............................Japanese Yen......................................................11/19 Euro Index F ..11/15 Soybean Meal F .........................................................Conillon coffee F ...............................Mini U................................................................................................U..........Uranium F ......................11/23 FTSE 250 (London) F ........................................................................................ OF .....................................................................................................Italian Equities O .......................11/23 KOSTAR F............11/15 Italian Equities O ..............................................................................................10/28 ..Cocoa F ...........................................................................................................................................Feed Wheat OF ................. O...11/27 Gasoline F ......................Robusta Coffee F...............................Stock (Amsterdam) O ....................................... & 10-yr.......10/18 .......10/14 ........................................................................................11/30 IGP-M F .............................................................Rapeseed F .............................11/28 HOG F.................................................................... & 10-yr... 5-yr...Value Line OF .................................................................................10/9 ............PSI 20 Index (Lisbon) F........................................................11/15 Rapeseed Oil F .................10/18 ......11/21 Wheat F ...........................................................................................................................10/11 ...................................................................................................Mini Live cattle F ......com | October 2009 ........................................................................................................................Platinum F ................................................11/30 IDI Index O ........................Live cattle OF ...............................................................................................................................................

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