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Extremely volatile market conditions not only produce unpredictable short term stock price swings but also open up the bid ask spread of individual stock options due to a lower liquidity and profiteering by market makers. This combined effect not only made it doubly hard for options traders to make a profit. Volatile options strategies, supposed to be meant for such conditions due to their ability to make a profit when the market moves up or down strongly and their ability to profit from an increase in volatility, also failed to produce any consistent profits due to the higher premium outlay and wide bid ask spreads, soaking up most of the profits. Unexpected rallies also crunch volatility to the extent of producing losses through decaying the premium of long legs at express speed. Short term (weekly, monthly) directional options strategies fared even worse as it not only became almost impossible to predict short term price swings but the high premium and bid ask spreads also took most, if not all, of the profits away even if the stock did move in the expected direction.

So what works in an extremely volatile market condition such as this one?

First of all, let’s look at all the different ways to trade options. There are 3 main options trading methodologies; Swing Trading, Position Trading and Day Trading.

Swing trading is a directional options trading methodology that aims to pick stocks that will move quickly and strongly within a short period of time in a predictable direction and then execute bullish or bearish options strategies in order to profit from these moves. As mentioned before, trying to profit from directional swing trading in an extremely volatile market is like swimming against the tide. Not only is directions hard to predict in the first place but the high options premium along with gapping bid ask spread all work against its favor.

Position trading is more complex than Swing Trading as it aims to profit mainly (although there are also position trading strategies that are directional in nature) from volatility or premium decay through putting together several different options and / or stocks in order to produce a hedged, market neutral position. Position trading has produced some pretty profitable results for me in this market crisis as volatility soared and options premiums are high. This puts the disadvantages of an extremely volatile market condition in the favor of the options trader. Such positions include dynamically hedged delta-neutral as well as delta-gamma-neutral positions. Both of these position trading strategies aim to neutralize market movement such that unexpected swings do not affect the position significantly while the position safely takes the high options premium on the short legs into your pockets.

Day trading is an extremely dynamic options trading method where options are bought and sold very quickly within one day in order to profit from the slightest intraday price swing or change in volatility. This strategy was a pretty hard one to profit from in low volatility market conditions as prices doesn’t change enough within a day to produce significant profits. However, day trading becomes extremely profitable in the hands of seasoned options trading veterans in extremely volatile market conditions such as this market crisis as the Dow itself has produced intraday trading ranges of up to 10%! Yes, this is the kind of trading range and price range that cannot be realized in normal market conditions. Day trading often takes the form of simply buying or shorting call or put options and then quickly covering them when profitable. Day trading also avoids the extreme overnight uncertainties that so often catch swing traders by surprise in this market crisis. Sudden overnight good news can often gap the Dow up by a significant amount and closing it over 10% higher. This can wipe out all your profits if you had been betting in the opposite direction overnight. Day trading, however, is extremely risky for beginners in options trading as the price movement is so fast and dynamic that when things happen, beginners may not know what to do and be able to do it quickly. This is therefore not recommended for beginners.

So, there you have, 2 ways to profit from this market crisis through options trading which I have used profitably. Options trading (http://www.optiontradingpedia.com) is definitely profitable under any market conditions as long as you use the right method for the prevailing conditions.

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for instance:

futures price:
bid: 1000
ask: 1002
bid size: 0
ask size: 1

thanks

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Futures are an investment type called “derivative contracts”. The word “derivative” refers to the fact that the investment’s price is derived from the price of an underlying element (like an asset or an index. The word “contract” refers to how the investment is bought or sold – each party in the contract (the buyer and seller) has the obligation to fulfill the contract on the settlement date.

While equities give traders partial ownership in a company and a vote at the next company meeting, futures contracts are an agreement between a buyer and seller based on a specific underlying item. There are numerous kinds of futures derived from numerous underlying securities. These include:

* Commodities, like corn, oil, wheat, pork bellies, etc.
* Financials, like interest rates, currencies, etc.
* Indexes, like the equities indexes that include NASDAQ or the Dow-Jones

Those are common types of futures but there are more as well. Futures are traded on an exchange and the futures market is highly liquid. Traders who know what they are doing and don’t mind accepting the associated risks, can enjoy an excellent return on their investment.

Trading in futures requires two different kinds of analysis, very similar to the kinds of analysis common in the equities market: Fundamental analysis and technical analysis. Fundamental analysis is the study of macroeconomic and microeconomic conditions that could influence a price. This might include the economy or news stories or a company’s financials, or even terrorism. Technical analysis is the study of trends based on the price of the investment itself.

Traders have developed numerous analytical tools to apply to an investment’s chart in order to gain insight into where the investment is expected to go based on the behavior of the prices so far.

Ultimately, success in futures contracts is based on insight gained from these two types of analyses. The challenge traders have is to get trusted data in order to gain the best insight. To do that, trading platforms have been built to assist traders. They can monitor current and potential investments, as well as the macro- and microeconomic data, apply analysis, and act on the insight they gain. High cost, low cost, and free trading platforms are available, with some platforms charging for market data and some providing it for free. A good free trading platform which comes with free market data is Pro-Edge Trader which is available through providers like LionsFutures.

Trader interested in getting into futures as an exciting step up from the bland (depressing, and less liquid) stock market should consider assessing their risk aversion and explore futures. Start with a free trading platform that provides a demo (so you don’t have to use real cash) to test your skills in futures and see if the market is right for you.

What happened?

There are actually a number of things that came into play.

1. First and foremost. They believed all the hype that they would become rich over night.

2. They did not buy a good course on how to trade the commodity markets.

3. They picked up some books on trading at the library, or worse, they signed up with a trading forum on the Internet and believed everything the so called experts said about getting rich over night in the futures markets.

4. They did not have a trading plan before they placed a trade. A disaster in the making.

5. They believed everything their broker told them. A NOTE: All brokers are not bad.

So what are new traders supposed to do. How do they keep from losing all their money in their first month as a commodity trader?

There are two very basic ways to learn the craft of trading.

1. Paper trade. Learn what to do before risking a penny.

2. Trade Mini-Futures contracts. Keep any loses to a minimum.

There are multitudes of commodity trading books on how to make money trading futures contracts. However, a person will be hard pressed to find how-to books devoted exclusively to trading Mini-Futures.

The reason I believe is that Mini-Futures lack the glitter and claims to instant wealth found in the more traditional commodity trading manuals.

It’s unfortunate, but an alarming number of new traders will read one or more of the how-to books on commodity trading and jump right in and place a trade order not fully comprehending the real risks involved in trading.

Futures prices can and do make extreme price swings. New traders, because they lack experience, are unprepared to handle the large losses when trading standard futures contracts when prices move suddenly against their position.

Mini-futures are not immune from the same extreme price move. However, the dollar loss is considerably less. Mini futures contracts will let a new trader survive a sudden market shift and have money left in their trading account for the next trading opportunity.

What about limiting your losses with Stop Loss orders?

A Stop Lose is supposed to keep you from having large losses. Right? Not necessarily. There is what is called Daily Limit Moves, known as Limit Move, in futures trading.

A Limit Move means that a commodity price can only change up or down a certain amount during a trading session. When that happens trading stops until whatever caused the drastic price shift changes.

When a commodity makes a limit move against you it can shoot through your stop loss as if it did not exist. If you are unfortunate enough to get stuck in a Limit Move against you that last two, three, or more days you will be wishing you never heard of trading commodities.

This is not an everyday occurrence that you have to lose sleep over, but you need to be aware of it.

Trading futures can be a very profitable way to earn a living if you treat it as a business. Trading in the commodity markets is an extremely high-risk business and as with any business you must first learn the business so you won’t lose everything you own.

Think of it as if you suddenly wanted to be a high wire performer in a circus. You would be in serious trouble if you put on the flashy tights, went up 50 feet and inched your way out on the wire before you learned the craft of tightrope walking a foot off the ground. Fifty feet is a long way to fall without a net to catch you.

Trading in the futures markets, and even the FOREX markets is considered very risky. You must learn how to do it without putting your entire financial world at risk.

When I say risk I mean how much money you stand to lose if a trade goes against you. Your risks are anywhere from 20% to 50% less with mini futures over the more standardized commodity contract.

As an example a 20-cent move against you in corn is $1000 while the same move in the mini corn is only $200. Another great feature of the mini futures markets is the investment required to trade a mini commodity is also 20% to 50% less. A mini wheat contract currently requires about $400 to trade while the full size contract requires more than $1400.

A final note: The FOREX markets also have mini-contracts. But, the same risks apply. This series of articles will hopefully show you how to limit your exposure to a financial disaster.