A Brief Introduction to Commodity Option Trading

The world of commodity options is diverse and cannot be given justice in a short article such as this. The purpose of this writing is to simply introduce the topic of options on futures. Should you want to learn commodity options trading strategies in more detail, please consider purchasing "Commodity Options" published by FT Press at www.CommodityOptionstheBook.com.

Why Trade Commodity Options?

Just as there are several ways to skin a cat, there are an unlimited number of option trading strategies available in the futures markets. The method that you choose should be based on your personality, risk capital and risk aversion. Plainly, if you don't have an aggressive personality and a high tolerance for pain, you probably shouldn't be employing a futures and options trading strategy that involves elevated risks. Doing so will often results in panic liquidation of trades at inopportune times as well as other unsound emotional decisions.

Commodity options provide a flexible and effective way to trade in the futures markets. Further, options on futures offer investors the ability to capitalize on leverage while still giving them the ability to manage risk. For example, through the combination of long and short call and put options in the commodity markets, an investor can design a trading strategy that fits their needs and expectations; such an arrangement is referred to as an option spread. Keep in mind that the possibilities are endless and will ultimately be determined by a trader's objectives, time horizon, market sentiment, and risk tolerance.

Knowledge is the most valuable commodity!

www.ATradersFirstBookonCommodities.com

Amazon

Barnes & Noble

Before you trade commodities, you'll need significant practical knowledge of the associated risks and futures market characteristics. That's where this book comes in. You won't find boring theory or bewilderingly complex commodity trading strategies here. Instead, you will find specific guidance on accessing commodity markets cost-effectively, avoiding common beginners' mistakes, and improving the odds of successful futures and options trades.

Drawing on her extensive experience as a commodity broker, Garner shows how to calculate profit, loss, and risk in commodities, and choose the best futures brokerage firm, service level, data sources, and futures market access for your needs. Garner demystifies the industry's colorful language, helps you clearly understand what you're buying and selling, and walks you through the entire commodity trading process.

She concludes with a refreshingly new look at topics such as futures trading plans, handling margin calls when trading in commodities, and even maintaining emotional stability as a trader.

• Know the players, know the language, know the techniques
• Master the basics painlessly and avoid beginner's mistakes
• Choose the right commodity brokers, services, trading platforms, and tools
• Get what you need; don't pay for what you don't need
• Make sense of confusing commodities quotes
• Know what you're buying, what it costs, the returns you're earning, and the risk you're taking build a flexible trading plan that works to help predict price, manage risk, and make trades that reflect your analysis.

Here you will find the basics of trading in commodities.  This section will be most useful to beginning futures traders, but its content shouldn't be overlooked by those with trading experience.  The goal of these articles to help traders fully understand the risk and reward prospects of participating in the commodity markets. 

Citizens of Britain opted to take a bold stance, and the financial futures markets paid the price

If you were on the sidelines last night when the news hit, congratulations. It is easy to get sucked into the sorrow of knowing you missed out on some big market moves, but the reality is....most traders attempting to surf the waves of volatility wiped out. Either they were stopped out prematurely on the pre-Brexit realization, or they were too late to react and sold the lows in the ES (or bought the highs in the ZB). Many of my colleagues were watching the futures markets from afar, and happy to be experiencing one of the largest currency and Treasury moves in history with a bowl of popcorn in their lap instead of a bottle of whiskey.

We aren't even going to attempt to predict what Monday will look like. Nor will we make any trading recommendations until the chaos dies down. That said, we will be strongly considering adding to our short Fed Funds futures position early next week.

Carley Garner's futures, options, and FOREX trading books have been reviewed by several national publications.  Here is a sample of some of the trading community book reviews.

Learn to trade futures, options, and FX with Carley Garner books!

Carley Garner, a futures broker at DeCarley Trading, is the author of multiple trading books.  The intention of the publications is to compile lessons learned as a long-time commodity broker, and deliver them to readers in simplified and efficient educational material for futures, options, and FOREX traders.  

Futures Order Entry Methods

Sometimes it is the small details that make a big difference in futures trading performance. Familiarity with commodity order types and how to properly place each of them, is critical to being a successful trader. Commodity market prices and dynamics are ever-changing, making every second count. Regardless of whether you are trading online via a futures trading platform, or through a commodity broker, knowing the type of order you need to place and placing it accurately is vital.

Communication is the key. If you have questions about the different types of futures orders and how to place them verbally or online, call your broker for assistance. Futures contracts are highly leveraged trading instruments; accordingly, mistakes in order execution are costly! Throughout my lengthy career, I’ve managed to rack up a handful of gut wrenching trade placement errors; some of them well into the thousands of dollars. It is imperative that traders take the steps necessary to keep such errors to a minimum.

Futures Market Bid/Ask Spread

Before discussing order types in the futures market, it is imperative to understand the nature of commodity prices. For any given futures contract, there are essentially two commodity quotes. There is a price at which it is possible to immediately buy the futures contract, and there is a price in which a commodity trader could immediately sell. The price at which traders can buy the futures contract is known as the ask; the price traders can sell a futures contract is known as the bid. The difference between these prices is referred to as the bid/ask spread.
In most futures markets, the bid/ask spread is minimal, but those commodity markets that lack ample trading volume can involve rather wide spreads between the bid and ask. In such markets, order slippage and transaction costs will be much higher than that of a sufficiently liquid futures market. Further, even in some liquid commodity markets, there are certain futures contract expiration months that have less volume than others. For instance, if you are interested in trading the e-mini S&P 500 the front month contract is highly liquid but attempting to trade contracts with expirations several months into the future will likely be inefficient due to a lack of market liquidity. For example, the bid/ask spread of the front month e-mini S&P futures contract is generally 1 tick, or .25 points (equivalent to $12.50) but the bid/ask spread on a contract expiring a year down the road is generally 10 to 12 points, or $500 to $600). In other words, along with the stated commission charged by your commodity broker to enter the trade, the cost of executing in the distant expiring futures contract is several hundred dollars as opposed to $12.50 for the front month.

Those new to trading in commodities, often overlook the hidden cost of the bid/ask spread built into the commodity markets, and all other markets for that matter. Some attempt to buy or sell futures contracts with distant expirations to avoid the commission cost associated with rolling positions over (exiting an expiring futures contract to enter the next contract month to avoid delivery of the underlying commodity); ironically, their quest to save a few dollars in commission can easily cost them hundreds of dollars in unsightly transaction costs such as the bid/ask spread.
You might hear some aged (or perhaps, seasoned is a better word) traders refer to the ask price of a futures contract as the “offer”. Thus, if you hear someone say “bid/offer” you can assume it is synonymous with bid/ask. In addition, if you hear a trader say “the market is offered at” it is equivalent to saying “it is possible to buy the commodity at”.

Market Order

This is the most common futures order type simply because it is the most convenient. A market order initiates the futures trade at the current market value by filling the order at the best possible price at that particular time. This means that you will be taking the bid price if you are selling the commodity contract, and taking the ask price if you are buying it. Keep in mind that a market order guarantees that your order will be filled but it doesn't guarantee that you will be happy with the price.

Limit Order

This futures order type initiates the trade at a specific price "or better" if possible. “Or better” is the key here. If the order is to buy a futures contract, “better” is equivalent to a lower price; if the order is to sell a futures contract, “better” is equivalent to a higher price. For example, entering an order to buy 1 August Soybean futures contract at $11.05 means the trader will only accept being long from $11.05 or less. In essence, traders use market orders if they prefer to get filled over receiving a certain price; if the priority is to receive a particular price, or better, a limit order should be used.

Seasoned traders know the market might hit the limit order price without the trade necessarily being executed. This is because of the bid/ask spread, and the fact that limit orders are filled on a first come, first serve basis. If there are 100 traders working a futures limit order at the same price, the earliest orders to be filled are those that put their order in first. Further, if the market peaks or troughs at the limit price not all 100 orders typically get filled because there might not be enough traders willing to take the other side of the trade at that price.
Accordingly, a limit order is only guaranteed a fill if the futures contract price trades at least 1 tick beyond the limit order price. For this reason, it is often said in the business that it "has to go through it to do it".

Simply put, if you have an order to sell the mini-sized Dow at 17,250 and that price is the high of the day, your order may, or may not, have been filled; but if the high of the day is 17,251 you are owed a fill.

Stop Order (AKA Stop Loss)

This order becomes a market order only when the specified price level is reached. This can mean that the futures market trades at the stop price, or the stop price has become part of the bid/ask spread. A commodity buy stop order is placed above the current futures market price, and a sell stop is placed below the current futures market price. In any case, a stop loss order is subject to the possibility of slippage on the fill. In other words, your fill price may be different that the stop price that you had originally named.

Fill slippage occurs because the stop loss order becomes a market order, it is not an “or better” order. Futures stop loss orders are most commonly used to “stop the loss” of a speculative position gone bad. For instance, a trader long December Corn futures from $5.00 might place a sell stop order at $4.80 to liquidate the position should the market go against the original speculation by 20 cents. Once again, slippage is possible. Simply placing a stop loss order at $4.80 doesn’t guarantee a fill at that price. The reported fill might be $4.79, or much lower depending on market conditions, volatility, and potential price gaps from the market closing price in one session to the opening price of the next. Nevertheless, in today’s electronic markets slippage is typically minor.

A stop loss order can also be used to enter a commodity market. If a trader believes a futures market might continue to rally once it breaks technical resistance, he could place a buy stop order to enter the market with a long position if prices rally to your stated price. To illustrate, if crude oil futures are trading at $62.00 per barrel, and you believe a break above $63.00 could open the door for a large rally, it might make sense to place a buy stop at $63.10. This order would execute a long futures contract for the trader if $63.10 is reached. If the commodity price never reaches the stop loss level of $63.10 the order will not be filled.

Trailing Stop Loss

Some, but not all, futures trading platforms and futures brokers offer the ability to enter trailing stop loss orders. This order type initiates a stop loss order which moves incrementally with favorable futures market movement. The parameters of the trailing stop loss order depend on the platform, and the discretion of the trader, but it typically involves some sort of measurement of tick price movement. For example, a trader that is short a futures contract might place a buy stop above the market to protect from losses. If the trader chooses to use a trailing stop loss order, he might instruct the platform to lower the stop by 5 ticks for every 5 ticks the futures price falls. Once the stop loss order is placed, or trailed, it will not back up; thus, if the stop order is trailed twice before the market reverses, it will be triggered at the last trailing stop price (which is 10 ticks lower than the original stop loss price).

One Cancels the Other (OCO)

This is also referred to as a contingency order because it requires that the commodity broker, or futures trading platform, cancel one of your orders should the other be filled. Not all futures brokers are willing to accept this type of order becuase of the risk of something going wrong (whether it be technical error, human error, or simply a fast moving futures market). For example, a trader long December Corn might simultaneously place a limit order above the market as a profit objective, and place a stop loss order beneath the market to limit the exposure to risk of an adverse futures price movement. If these are placed together as an OCO, execution of one of these orders would result in the cancellation of the other. As previously mentioned, if you place this order through your futures broker, he is taking on a substantial amount of responsibility with this type of order and will likely only do so on a full service basis. However, most trading platforms are capable of accepting this commodity order type for electronic execution. As a result, there isn’t nearly as much human intervention involved in OCO orders than was once the case.

The ease and access of OCO orders has greatly improved the convenience of trading commodity futures. Prior to advances in technology in the commodity industry, mis-executed OCO orders created a lot of chaos. Imagine the stress of being long or short a futures contract because the un-filled half of an OCO order wasn’t properly canceled, but was later inadvertently filled.

MIT (Market If Touched)

This order is similar to a stop order in that it becomes a market order once the specified price is "touched". However, it is also similar to a limit order because a sell order is placed above the current futures market price and a buy order is placed beneath the current price. In other words, this is a special type of limit order. Rather than the trader asking for a price or better, the trader simply wants to be filled at the best possible price should the market hit their stated MIT price. A market if touched order in a commodity market avoids the frustration of a limit order hitting the stated price, but going unfilled. However, it also opens the door for some slippage in the fill price.

MOO (Market on Open)

The market on open order type was born in the trading pits. Originally, it was an instruction to buy or sell a commodity futures contract on the open of the pit trading session. However, electronically executed futures markets have really changed the landscape of this type of trading because speculators are now able to place futures orders around the clock. There is no longer a morning “open”, or at least not an official one. Instead, most commodities open for trade in the afternoon prior to the day the trading session closes. To clarify, the futures markets open on Sunday night, and trade through Monday afternoon. On Monday afternoon, they close for a brief period (an hour or two for most futures contracts), then open back up for trading. The Monday afternoon re-open is considered Tuesday’s trading session.

Because of this change in logistics and timing, MOO orders have mostly dropped off most futures trading platforms. However, some trading platforms offer “timed” orders in which commodity traders can establish an order to buy or sell a futures contract using a market order at a time just after the open of trade, or at the time in day in which the open outcry trading pit previously opened when it was in operation.

MOC (Market on Close)

A market on close order is one in which the trader wishes to buy or sell a futures contract at the close of a trading session. Similar to the market on open designated order type, the MOC order is far less common in an electronic trading world but some platforms are capable of imitating the order type through “timed orders” which are released by the platform at a time of the day specified by the trader entering the futures order.

TAS (Trade at Settlement)

The trade at settlement (TAS) order type is essentially the new MOC order for the futures markets. A TAS order is placed by traders who wish to buy or a sell a commodity futures contract at the settlement price of the current trading session. A Trade at Settlement order is unique relative to the Market on Close because it gives futures traders the opportunity to name the acceptable fill slippage. This is necessary because it might not be possible to fill all of the TAS orders at the actual settlement price. Don’t forget, for every buyer of a futures contract there is a seller; therefore, in order for a TAS order to be filled at the settlement price of a commodity, another trader must be willing to take the other side of the trade at that price. Accordingly, TAS orders can be placed at 0, +1, or +2 (or at -1, or -2) to designate the number of ticks above or below the settlement price the trader is willing to accept as a fill price.

Iceberg Orders

The reference to iceberg stems from the idea that the “tip of the iceberg” is the only visible part of a large mass of ice emerging from a body of water. Accordingly, the term “Iceberg Order” is defined as the practice of breaking an order to buy or sell a large quantity of contracts into multiple smaller orders through the use of automated software. As the futures markets moved from open outcry execution to electronic, this order type has become increasingly more popular. This is because those traders, whether retail or commercial, trading large quantities typically prefer to mask the true volume from view of others. In other words, iceberg orders enable the “public” to see only a small portion of the actual order at a time.

Most futures trading platforms offer the ability to view DOM (Depth of Market) data in which it is possible to observe the working buy limit and sell limit orders of other traders. These working orders on display are often referred to as the “book”. Some traders monitor the trading book for large quantity orders. In theory, large buy orders indicate the market might be inclined to move higher, or at least it suggests that a large player, or players, believes it will. These inferences, whether right or wrong, can influence prices and possibly prevent the entity placing the large quantity to be filled at their desired price. As a result, funds and institutions placing sizable orders have incentive to mask the true quantity of their order. Simply put, those using iceberg orders do so under the belief that it will reduce the impact the order has on price movement as it is absorbed into the market.

When an iceberg order is placed, the trader determines the disclosed volume which will be placed as a regular limit order, and the hidden volume which is only placed once the first tranche is filled. For most retail traders, iceberg orders are not necessary but the ability to execute them is available on most futures trading platforms, so it is a good idea to understand what they are. However, it is typically not a good idea for average retail traders to use this order type. After all, those trading small quantities will have little or no impact on prices so there is no need to disguise the quantity. Furthermore, because the hidden quantity is only placed after the disclosed quantity, it will fall to the bottom of the priority list in the exchanges trade matching system. In other words, traders unnecessarily using iceberg orders are reducing their odds of getting filled at their limit price.

GTC (Good 'Til Canceled)

As the name implies, good ‘til canceled orders, often called open orders, are always considered active until filled, canceled, or replaced by another order. Beginning futures traders have been known to place GTC orders and forget about them only to find that disaster has struck while they weren't watching. If you are gong to use GTC orders make sure that you properly monitor them. Most platforms and commodity brokers assume futures orders are “day orders”, meaning they are canceled at the end of the trading session if they aren’t executed. Consequently, when entering futures orders intended to be active until otherwise canceled, it is necessary to convey it as such.

Straight Cancel (Straight "Can")

This completely eliminates a previously placed order. Keep in mind, a futures “market” order cannot be canceled because it will be filled immediately.

Cancel/Replace (Modify)

This cancels and replaces a previous order by changing the price, type, or quantity, but you cannot replace the commodity or contract month. Depending on the futures trading platform being used, it might or might not be possible to modify a working order into a GTC (Good ‘Til Canceled) order designation.

In most commodity futures markets it is possible to cancel/replace a working stop loss or limit order into a market order, but futures contracts traded on the ICE exchange (Intercontinental Exchange), typically cannot be modified into a market order. In this instance, it is necessary to cancel the existing order outright, and enter a brand new futures order ticket to buy or sell the futures contract at the market price.

In line with our commitment to providing free commodity trading education, we've put together a handful of option trading educational articles.  

Whether your strategy involves selling options on futures, buying options, or even a combination of both, we believe the articles in this section will be useful to you.  If you would like to expand on these option trading strategy ideas, we encourage you to read "Commodity Options", which covers several option strategies in detail.  

For more information, visit www.CommodityOptionstheBook.com.

Learn to Trade Commodity Futures and Options

Trading commodity options and futures isn't easy and shouldn't be attempted without completely understanding what you are getting into.  As an experienced commodity broker, I encourage you to take advantage of these free commodity trading education resources. 

The Commodity Trading 101 section includes several articles for beginning futures traders covering topics from calculating profit and loss in commodities, to establishing a trading plan.  We've included a commodity glossary compliments of the CFTC (Commodity Futures Trading Commission).

Despite what you may have read in commodity trading books, magazines, or even heard on infomercials, trading options and futures entails substantial risks and is not suitable for everyone. 

On the other hand, trading in futures and options can be financially rewarding, but you must realize that where there is potential opportunity there is a corresponding amount of danger. 

For this reason, only risk capital (money that you can afford to lose without altering your lifestyle) should be allocated to a commodity trading account. 

The risk in trading futures stems from the leverage provided by the exchanges, combined with the speculative nature of the commodity markets.  Unlike an investment in stocks or bonds, futures traders aren't buying or selling assets.  Instead, they are buying and selling obligations to make or take delivery of the underlying commodity.  In other words, futures traders don't own anything other than a liability.  Further, commodities don't pay interest or dividends to buffer investment volatility.  As you can image, this sets the stage for a considerable amount of risk and reward.  

The ability to easily buy or sell futures and options contracts in any order creates opportunity, but it also breeds aggression; and this can sometimes be too much for beginning commodity traders to overcome.  We urge traders to live by the motto "less is more".

The leverage in commodity trading is created by the ability to share in the profits and losses of a substantial amount of the underlying asset for a relatively small good faith deposit.  Simply put, futures exchanges require a small margin deposit comparative to the total value of the commodity contract being traded, this allows a reasonably small move in the futures price to have a large impact on the value of your trading account.  It is not unlike the leverage most home buyers experience; they put a down payment of 5 to 20% but their capital gains and losses are determined by the full value of the property. 

With that said, please note that being a successful futures and options trader is challenging yet achievable.  In my experience as a commodity broker, I have found that the only way to "beat the market" is through the ability to overcome emotional and psychological barriers.  Unfortunately, this is something that can only come through practice...unless of course you were lucky enough to be born with the appropriate personality for trading.   

We at DeCarley Trading hope to play a part in your journey through the markets and insist that you consider both the sides of the coin before choosing to trading options and futures.  We look forward to hearing from you. 

*If you have already enjoyed a trial of this futures trading newsletter, please open a commodity trading account with DeCarley Trading to continue to receive it.

The DeCarley Perspective is an e-blast trading newsletter with a focus on the commodity futures markets, and options on futures trading. It is distributed to commodity trading clients of the DeCarley Trading brokerage service. 

This commodity trading newsletter, written by Stocks & Commodities columnist and commodity broker, Carley Garner, provides a refreshingly honest and comprehensive perspective of the current commodity and financial market environments. The DeCarley Perspective is distributed several times throughout the month to those with an active commodity brokerage account with DeCarley.  This newsletter covers both the futures and options markets for commodity products such as the grains, meats, softs, metals, energies, currencies, interest rates, and the stock indices.

In each edition of the newsletter, futures broker Carley Garner, of DeCarley will share insights into fundamental commodity market analysis in addition to the seasonal outlook of various futures markets.   This futures trading newsletters includes a substantial amount of technical analysis performed on the commodity markets, with visual charts to support opinions. "The DeCarley Perspective" may contain specific trading recommendations (primarily option trading strategies) or broad based commodity trading strategy ideas.

All fields must be completed to be granted a trial

 *There is substantial risk of loss in trading futures and options!

*If you have already enjoyed a trial of this futures trading newsletter, please open a commodity trading account with DeCarley Trading to continue to receive it.

The Financial Futures Report is an e-blast commodity trading newsletter distributed to DeCarley Trading futures brokerage clients, free of charge.

DeCarley Trading newsletters and educational articles written by experienced futures broker, Carley Garner, have managed to "garner" a loyal following in the trading community.  Both beginning and experienced futures traders will likely find the content useful and hopefully profitable; particularly those day trading the e-mini S&P.  Whether you trade options or futures you will likely be pleased with the guidance provided by The Financial Futures Report. If you are serious about learning to trade futures, this is a must have!

The Financial Futures Report e-blasts include daily futures market commentary on Treasury futures (futures symbols ZB, ZN, and ZF) and stock index futures (futures symbols ES, NQ, YM), trade recommendations (largely option trading strategies), an insider's perspective, honest and reliable analysis, and commodity market strategy.

All fields must be completed to be granted a trial

* DeCarley Trading reserves the right to terminate trial subscriptions at any time.  If you have already enjoyed a trial subscription, please open a trading account with DeCarley to continue receiving the newsletter.

If you are going to trade currencies in the futures or FOREX market...You had better shorten the learning curve!

www.CurrencyTradingtheBook.com

Amazon

Barnes & Noble Currency Trading Book

Currency Trading offers immense potential to stock and futures investors seeking new speculative opportunities. However, there are several ways to trade in currencies, and many unsuspecting traders have been burned by aggressive marketing campaigns and gimmicks luring them into unfavorable trading environments.

In this currency trading book, best-selling trading author Carley Garner covers everything new FX and futures traders need to know to avoid those pitfalls in hopes of earning substantial profits.

"Currency Trading in the FOREX and Futures Markets" begins by demystifying all the essentials, from quotes and calculations to the unique language of FX trading.

Readers learn all they need to know about choosing currency trading platforms and brokerage firms; working with leverage; controlling transaction costs; managing liquidity, margins, and risks; and much more.

Carley Garner thoroughly explains the currency spot market (Forex, a.k.a. FX); currency futures traded on the Chicago Mercantile Exchange (CME Group) and elsewhere; and currency ETFs. She candidly discusses the advantages and disadvantages of each, cutting through the "smoke and mirrors" often associated with currency trading.

Readers will also find a full section on currency market speculation, including a clear introduction to fundamental and seasonal analysis in the futures and FOREX markets. With her guidance, new currency traders can identify the trading venues and approaches that best fit their objectives, and avoid the traps that have often victimized their predecessors.

Visit www.CurrencyTradingtheBook.com for details.

Traders are often lured to into the futures markets with a fascination for day trading. 

The thought of buying and selling leveraged contracts without overnight risk is appealing to many, but underestimated by most.  As a retail commodity broker, I have had the pleasure, and the pain, of watching futures day traders attempt to profit through strategies ranging from scalping, to "position" intra-day trading, which spans several hours.  

My observations of the futures markets have led me to the conclusion that day trading is perhaps one of the most difficult strategies to successfully employ.  However, for those that have the perseverance to dedicate themselves to the practice, contain the natural ability to eliminate emotions, and have enough experience under their belt, day trading in the futures market might be one of the most potentially lucrative forms of commodity market speculation. 

The term day trading can be used to describe an unlimited number of futures trading strategies and approaches that involve buying and selling a commodity contract in the same trading session.   Many are system based, meaning that trading signals are executed according to specific technical analysis set ups; others incorporate a trader's instinct.  The approach that you take in the futures markets should be dependent on your personality and risk tolerances; not necessarily what has worked for somebody else.  Let's face it; there are only about twenty to thirty commonly used technical oscillators available in most trading platforms.  If there were absolute magic to any of them more people would have discovered the Holy Grail to futures trading.  Rather than expecting a technical indicator or a computer generated oscillator to do the work for you, I believe it to be more productive to properly educate yourself to the risks and the rewards of the commodity markets.  This includes the less technical, and thus less talked about, aspects of day trading.  

Futures Day Trading is Mental

I believe that becoming a successful day trader in the futures markets come down to instinct and the ability to control emotion.  If you have ever been involved in athletics, you have probably heard the adage that performance is 95% mental and only 5% physical.  I have found this to be true in trading as well, although instead of being physical trading is technical.  Quite simply, it isn't which technical analysis oscillators and indicators you use, it is how you use them.  Perhaps more importantly, how you deal with fear and greed that comes with risk exposure in the commodity markets as you are charting your futures trades.  Here are a few day trading tips that may aid in the mental preparation.

Know the Futures Market Volatility and Accept the Consequences

You often hear futures traders talk about their need for volatility.   It is a common perception among the trading community that higher volatility is equivalent to higher opportunity, and therefore profit potential.  Call me a "girl", but I happen to be a contrarian when it comes to this point of view.  Sure, if the markets are moving there is an increased chance for you to catch a large move and make history in your trading account.   However, there is another side to the story; let's not forget that if the market goes against your futures trade you could be put in an agonizing position.  Also, if you are a trader that insists on using stop loss orders, increased levels of futures market volatility translates into amplified odds of being stopped out prematurely. 

I am not suggesting that you avoid the futures markets during times of explosive trade; however, you must fully understand the consequences and be willing to accept the inflated risk of trading accordingly. 

In my opinion, the most convenient way of measuring commodity market volatility is through the use of Bollinger Bands.  The bands allow a trader to visualize the explosion and contraction of market volatility with similar movements in the bands.  Simply put, as the Bollinger bands get wider, the volatility and market risk is also on the rise.  Conversely, tighter Bollinger bands suggest relatively lower levels of volatility.  Please note that I didn't say lower levels of day trading risk; this was intentional. 

Figure 1: E-mini S&P 500 Futures - Traders can visualize futures market volatility through the use of Bollinger Bands.  It is a good idea to do so on a daily chart to get the big picture of market volatility. 

Narrow bands indicate that futures market volatility is relatively low, but if the contraction is excessive enough it may signal an extraordinary spike in price is imminent.  Markets go through times of quiet trade, but such times are often followed by large and sudden increases in instability.  As you can imagine, being in the futures market at such times could be similar to winning the lottery or they could mean financial peril.  Before executing a futures day trade in a fast moving market, or one that is trading quietly, you must be aware of market tendencies to properly assess the risk of initiating a futures day trade.  Being conscious of all of the potential outcomes of your futures day trade may prevent panic liquidation or the infamous deer in the headlights failure to act. 

Commodity Trader's Tool Box

Technology has provided traders with an abundance of readily available information at their fingertips.   Accordingly, I strongly believe that traders should properly understand and utilize the resources available to them.  It doesn't make sense to pick a single indicator or oscillator and expect it to tell you the whole story; instead it should be viewed as a piece to the puzzle.  With that said, it can often be counterproductive to bog yourself down with too much information or guidance; this is often referred to as analysis paralysis. 

In my opinion, it is a good idea to pick three or four tools that fit your needs and personality.  For example, if you are an aggressive trader with a high tolerance for risk you may opt for a quick oscillator such as the Fast Stochastics.  If you are a slower paced individual, the MACD may better suit your needs as it is a much slower moving indication of trend reversals. 

It is important to note that after you have entered a trade you shouldn't change the oscillator that you are watching simply because the original isn't telling you what you want to hear, or in this case see.  This can be a tempting practice for traders that are caught in an adversely moving market and are in search of a reason to stay in the trade for fear of taking a loss. 

Mental "Stop Loss"

As you are probably aware, a stop order (AKA stop loss) is an order requesting to be filled at the market should the named price be hit. A trader long a futures contract may place and stop order below the futures price to mitigate the risk of an adverse price move.  Likewise a trader holding a short futures position may place a buy stop above the current market price as a risk management tool against a possible rally.  Once executed, the trader would be flat the market at or near the named price. 

Most traders or trading mentors will tell you that you should always use stops; I am not most.  I argue that experienced and disciplined traders may be better off without the use of live stop orders and believe that mental stops may be a better alternative.  Supporting my assumption is the theory that  the dollar amount of the risk on any given trade is conceivably higher through the use of mental stops as opposed to actual working stop orders but the risk in the long rung may be less through the reduction of untimely exits.

The concept of a mental stop is simply picking out a price level at which it is fair to say that your position may have been an incorrect speculation and manually exiting the market once your pre-determined price is hit.  Using mental stops as opposed to placing an actual stop loss order may prevent the natural ebb and flow of the market from stopping you out at what ultimately becomes premature. 

I am sure that you have all fallen victim to the stop order that was triggered to exit your trade only moments before the market reversed course and left you behind.   Not only is this a frustrating place to be, but it often has an adverse impact on trading psychology going forward.  Unfortunately, it doesn't seem to be uncommon for inexperienced traders to behave somewhat recklessly in an attempt to get their money back from the very market that took it from them.  It is easy to give in to this mentality, but doing so will almost always end negatively. 

The use of mental stops requires a considerable amount of discipline and may not be appropriate for all traders and strategies.  If you have a consistent problem controlling your emotions (we all fall victim to fear and greed at some point), stop orders are a must.  Without them you may be put into a position in which a single losing trade can wipe out weeks or months of hard work, or worse put you out of the trading business forever. 

Even those that have an adequate ability to stay calm during unfavorable market moves may find losses pile up in violent market conditions.  For example, there are times in which it is very difficult to exit a position once the named price is hit without considerable financial suffering.  If you are not mentally capable of accepting this possibility, placing outright stop orders may be a better alternative for you despite its limitations.  Remember, if successful trading is largely determined by the mental capabilities of a trader it is imperative that you know yourself well enough to steer clear of situations that may lead you to behave emotionally as opposed to rationally.   

Figure 2: Mini Russell 2000 future - Stop loss orders are a great way to minimize futures market exposure, but I believe them to be a great source of frustration as well.  If you are disciplined it may be better to work without stop loss orders.

Be Creative with Options on Futures

It is no secret that more retail traders lose money than not in the realm of futures and option trading.  I have observed that day traders could face even more dismal odds of success.  However, don't let this deter you from participating in the commodity markets, instead use it as your incentive to be different.  If a majority of people are day trading futures contracts unproductively, perhaps you should be interested in trading strategies that are a bit out of the norm.  

Buy Futures Options Instead of using Stop Loss Orders

During the last few days of the life of a commodity option they time value, and thus the premium, of the instrument has often eroded to affordable levels.  If this is the case, it is sometimes possible to simply purchase a call or put option as an alternative to placing a stop loss order.  This strategy can also be viable in option markets that have more frequent expiration dates; particularly the weekly options written on the stock indices and grains. Keep in mind, however, that during times of excessive volatility even options with little time to expiration can remain too expensive to make them a viable substitute for stop loss orders.  In other words, using long call and put options instead of stop loss orders to limit risk of a futures trade is only situationally beneficial.    

In essence, the purchased futures option creates a synthetic trade in which the day trade risk is limited to the amount paid for the option plus any difference in the entry price of the futures contract and the strike price of the option.   This is because the futures option will act as an insurance policy against the futures price moving above the strike price of the long call or below the strike price of a long put.  Beyond the strike price of the option, losses in the futures contract are offset with gains in the option at expiration. 

The premise of such a day trading strategy is to reduce the possibility of being prematurely stopped out of what would eventually become a profitable trade.  However, it is important to realize that using long options as a replacement for stop loss orders should only be done if the risk is affordable.  If the options are relatively expensive to purchase, the risk of loss will be too high; depending on the situation it might render this approach impractical. Keep in mind, the foundation of buying commodity options instead of placing stop orders is to limit risk of loss, not to increase it.  To reiterate, paying more for a protective futures option than you originally intended to risk on the day trade should be a red flag, and lead you to explore other alternatives.

Counter Trend Futures Trading

Based on observations made during my years of being a futures broker, it seems as though most day trading futures strategies are very simple; identify an intraday trend and "ride" it until it ends.  It sounds easy enough; but is it?  I will be the first to admit that day trading is not my forte.  Nevertheless, through the scrutiny of the futures trading practices of others, compliments of my profession as a futures broker, I strongly believe that intra-day trend trading is much more difficult than one would imagine. 

The problem with a futures market trend is it is only your "friend" until it ends.  By the time many trend trading methods provide confirmation to execute a futures trade, the market move has already been missed.   Psychologically, I have a difficult time buying a futures contract that has already risen considerably.  Likewise, selling a futures contract after it has already established a down-trend may simply be too late.  After all, the overall objective is to buy low and sell high.  Buying high and selling higher may work at times, but the common theory that commodity markets spend a majority of their time range-bound seems to work against intraday-trend trading in the long run. Only during times of exceptional market moves will it be possible for a futures day trader to ride a trend long enough to recoup what may have been lost on false signals and failed break-outs of the range. 

Patient day traders might find that they fare better by looking to take advantage of extreme intraday futures price moves in hopes of a temporary recovery to a more sustainable level.  Doing so may provide less profit potential and if done correctly less trading opportunities but may pose better odds of success.

Identify Extreme Futures Market Prices

Futures market prices have a tendency to overshoot realistic valuations, only to eventually come back to an equilibrium price.  Emotion plays a big factor in this phenomenon but the running of stop loss orders are also a primary driving force.  Traders often place sell stop orders under known areas of support and buy stop orders above known areas of resistance.  As you can imagine, there are often several stop loss orders placed on futures contracts with identical or similar prices.  Once these orders are triggered, a swift move in prices in the direction of the stop orders takes place but often has a difficult time sustaining itself.  Understanding that stop running can artificially move a market quicker, and in a larger magnitude, than what would have transpired without the stop orders, a trader could attempt to take advantage of the subsequent rebalancing in price. 

For example, an e-mini S&P trader may notice the market drop five handles in a very quick fashion with little fundamental news to drive the move.  This type of trade may be the result of a market that has simply triggered a batch of sell stops.  As the futures stop loss orders were filled, the buying didn't keep up with the selling and the futures price dropped accordingly.  However, if our assumption was correct and the move was based on sell stop execution, instead of fresh (legitimate) short selling, it is practical to believe that the futures market will rebound some, if not all, of the losses artificially sustained.  A futures day trader may look at this as an opportunity to buy the futures contract in an attempt to capitalize on a partial or full retracement of the drop. 

Figure 3 : Intraday Wheat Futures Chart - Extreme market moves followed by a retracement to an equilibrium level are common as stop loss orders are triggered creating large commodity price spikes.

Naturally, before entering a futures day trade some technical confirmation must be made.  After all, the theory that a market drop was the result of sell stop running was an assumption not a fact.  Overbought and oversold technical indicators such as Slow Stochastics, Relative Strength Index (RSI), and W%R (Williams Percent R), might be helpful in determining whether or not prices were pushed to a level extreme enough to encourage buying. 

Most of the available technical analysis oscillators were developed with the intention of identifying overbought and oversold conditions.  In their simplest forms, both overbought and oversold markets are the result of prices overshooting their equilibrium price.  

Most technical analysis indicators represent extreme prices relatively well.  Thus, traders looking to buy on dips may find them helpful, but shouldn't expect them to be fool proof by any means.  Computer generated oscillators are great tools but they aren't a guarantee.  They can tell you what the market has done, but only you will be able to translate that into what the market may do next. 

Conclusion

Although day trading in the futures markets is a challenge, there is likely a reason why so many active futures traders of all skill levels and sizes are attracted to the practice.  There are obvious market opportunities in intra-day trading and with enough patience, practice and fortitude you may become one of those that have achieved profitable long-term trading results.   However, there is also rationale as to why we don't all quit our jobs and day trade commodities for a living.  Despite what may be relatively conservative risk on a per trade basis and a lack of overnight event risk, day traders face substantial risk in the long-run through the possibility of several small losses.  If you aren't willing to commit yourself to the labor of futures day trading, I suggest that you consider less labor intensive strategies. 

Are we finally going to see the correlation between stocks and oil soften?

In overnight trade, it was the same 'ol, same 'ol. Crude and stock index futures moved together in lockstep; we saw the same action in early day session trade. Yet, after the Fed meeting, each market seems to be willing to have it's own reaction to the Fed news. Crude oil squeezed, and held, well into positive territory while the stock market remained under moderate pressure. This probably isn't an immediate game changer, but it is a step in the right direction and is worth noting. Both assets trading as one isn't healthy for the financial markets, or the commodity markets. In fact, it should eventually be bullish for stocks...after all, they've taken a hit at the hands of the crude oil futures slide.

The big news of the day was the Fed meeting. The meeting itself was considered to be "dead" going in. This means that few (nobody) believed there was a chance for a policy change, but traders were hoping for hints regarding the pace of upcoming interest rate hikes. In a nutshell, they were very careful to leave a rate hike in March as a possibility, while simultaneously noting softening conditions that probably won't warrant another immediate tightening of credit. In the end, the news was relatively neutral to slightly bearish for stocks, but seems to have been enough to throw cold water on market volatility, which is a blessing in itself.

Thanks to the CME Group (Chicago Mercantile Exchange); financial institutions along with investment managers, corporations, futures brokers, and private entrepreneurs have a regulated and centralized forum in which they can manage their risk exposure to changes in currency valuations. Naturally, where there are hedging opportunities there is also room for mass speculation and that is exactly what occurs every Sunday afternoon through Friday at the CME.

While many argue that the cash currency market, often referred to as Forex, is a much larger arena, I believe that the CME offers a very competitive trading environment in terms of execution. I also believe that the CME currency futures are superior in terms of transparency and credibility. This particular article isn’t intended to clarify the differences between Forex and currency futures, however, if you are interested in illumination of the arguments for and against each trading forum, be sure to read my book “Currency Trading in the FOREX and Futures Markets” published by FT Press (www.CurrencyTradingtheBook.com).

CME Currency Futures

Currency futures are traded electronically on the CME's Globex platform and are, for the most part, traded in "American terms". This simply means that the prices listed in the futures market represent the dollar price of each foreign currency or how much in U.S. dollars it would cost to purchase one unit of the foreign currency. In order to understand the point of view of the futures price ask yourself; "How much of our currency does it take to buy one theirs?" To illustrate, if the Euro is trading at 1.1639, it takes $1.16 39/100 U.S. greenbacks to purchase one Euro.

All currency futures contracts are categorized as financials, and therefore have a quarterly expiration cycle. Similar to Treasury bonds and stock indices, currency futures contracts expire in the months of March, June, September and December. Additionally, like the other financials, currency futures are traded nearly 24 hours per day. The CME halts trading for 45 minutes Monday through Thursday day between 4:15 and 5 PM Central time in order to maintain the electronic trading platform, and of course trade is halted on Friday afternoon in observance of the weekend.

Please note that the CME lists several currencies and even currency pairs (cross currency pairs that involve two currencies other than the US Dollar), that are not discussed within this article. The omission of such contracts was intentional. Many currency futures and pairs contracts are listed but do not have the ample liquidity necessary to make them a viable choice for speculators.

It is also important to realize that currency futures have no daily trading limits. Unlike raw or agricultural commodities, there is no limit to the amount in which currencies can appreciate or depreciate in a single trading day. There are arguments for and against price limits but in my opinion this is a positive characteristic because it prevents unnatural price floors and ceilings and avoids locked limit trade in which speculators are unable to exit a market. Of course there is a flip side, without price limits the currency markets can make very substantial moves on a daily basis. However, I will argue that in the long run a lack of price limits actually works to reduce market volatility. This is because a futures market that has gone “locked limit”, often accelerates panic felt by traders caught on the wrong side of the market and unable to exit their position.

The Majors

Euro Futures

The value of one futures contract is 125,000 Euro so each tick higher or lower changes the price of the contract by $12.50 and translates into a profit or loss to the trader in that amount. This is true of a majority of the currency futures. The Swiss Franc and the Japanese Yen share the characteristic of a $12.50 tick value.

Once you know the tick value of any particular currency futures contract, it is easy to compute the dollar amount of risk, profit and loss. For example, a trader that is long the Euro from 1.1239 and liquidates the position at 1.1432 would be profitable by 193 ticks or $2,412.50 (193 x $12.50). This is calculated by subtracting the purchase price from the sale price (exit) and multiplying that figure by $12.50.

1.1432 – 1.1239 = 193 profit

193 x $12.50 = + $2,412.50 minus commissions and fees

Swiss Franc Futures

The contract specifications of the Swiss Franc futures are identical to that of the Euro. Accordingly, the contract size is 125,000 Swiss Franc and the tick value is $12.50. With that said, calculating risk and reward is also the same. The only significant difference between the Euro and the Franc futures contracts are the price at which they trade.

Therefore, a trader that is short the “Swissy” from 1.0375 (nearly at par with the U.S. Dollar) likely believes that the value of the Franc will diminish relative to the greenback. However, the trader may also want to place a stop loss order to mitigate the risk of being wrong. If the stop order is placed at 1.0440 the funds at risk would be $812.50 ignoring commissions and potential slippage in the stop fill. This is figured by subtracting the entry price from the stop price and multiplying by $12.50.

1.0440 – 1.0375 = 65 risk

65 x $12.50 = $812.50 commissions and fees and ignoring potential slippage are not included in this assumption of risk.

At this price, it takes about a little over $1.00 to purchase one Swiss Franc. If the Franc were trading at $1 it would be described as being in parity with the Dollar or simply “at par”.

Yen Futures

The Japanese Yen is the most unique of the major currency futures contracts traded on the CME. The contract size is 12,500,000 Yen, yes that is right; twelve and a half million Yen. Despite the incredible contract size, the Yen has a tick value of $12.50 along with the Euro and the Swiss Franc. Thus, all calculations are treated in an identical manner.

On a side note, the massive contract size is necessary because the Yen is closer to being an equivalent to the penny than it is the dollar in U.S. currency.

British Pound Futures

The British Pound futures contract differs from the Euro in terms of contract specifications. A British Pound futures contract represents 62,500 Pounds Sterling (British Pounds). Just as the contract size is half that of the typical currency, so is the point value. Each point Pound of fluctuation represents a profit or loss of $6.25 to the futures trader.

The numbers are different, but the process is the same. A trader long the British Pound from 1.5732 but wanting to limit her risk to $1,000 would place a sell stop 160 points beneath the entry point at 1.5572. The number of points at risk can be determined by dividing the desired risk of $1,000 by the tick value, $6.25. Likewise, if the same trader later chooses to offset her long futures contract at 1.5643 (hopefully she remembered to cancel her stop), the realized profit would have been 71 points or $443.75. This is figured by subtracting the sale price from the purchase price and multiplying by $6.25.

1.5643 – 1.5572 = 71 profit

71 x $6.25 = +$443.75

The Commodity Currencies

Currencies in which their valuations are highly dependent on the exports of commodities are often dubbed as “commodity currencies”. The Australian Dollar and the Canadian Dollar are perhaps the most commonly traded commodity currencies. For instance, a relentless rally in crude oil and other commodities are generally supportive of the value of the Canadian Dollar, but sharp commodity declines will drag these two currency futures contracts lower. This is because Canadian and Australian exporters will likely sell products in terms of their domestic currency. The increased demand for their commodity products will have a direct impact on the demand for the Canadian currency and thus favor higher valuations of the “looney”. In fact, for the first time in decades, the Canadian Dollar traded at par with the U.S. Dollar in 2007 at the height of the commodity craze, and again in 2011 on a similar run in the commodity asset class.

Australian Dollar Futures

The Australian Dollar futures contract, often referred to as the Aussie, has a contract size of 100,000 Aussie Dollars. Consequently, the tick value of the contract is $10. Like the others, The Aussie futures expiration months are quarterly and there are no set price limits on daily trading.

Due to its convenient point value, risk and reward calculations can be figured by simply adding a zero or moving the decimal point one place to the right. To illustrate, a profit of 1 tick is equivalent to a profit of $10; likewise, if the market rallies 200 points a futures trader would be making or losing $2,000. For instance a move from .7298 to .7398 equates to 100 points, or $1,000 in profit and loss to a commodity trader.

Canadian Dollar Futures

The contract specifications for the Canadian Dollar are nearly identical to those of the Aussie Dollar futures. The contract size is 100,000 Canadian Dollars and the tick value is $10. Once again, working the math in this contract is as simple as adding a zero.

A trader that is short a Canadian Dollar futures contract from .7940 and subsequently gets stopped out of the position at .8400, the realized loss would have been 460 points or $4,600. Hopefully, you wouldn’t let your losses run to this extent but anything is possible.

.8400 - .7940 = 460 loss

460 x $10 = -$4,600 commissions and fees add to the loss

An Up and Coming Currency Futures Contract

Mexican Peso Futures

In the past the Mexican Peso futures contract offered questionable liquidity and few opportunities for speculators. However, the Peso has become much more popular among speculators and is worth taking a look at. Like the British Pound futures and the “commodity currencies”, the contract specifications for the Peso differ greatly from the norm.

If you have ever traveled to Mexico, you are aware that the valuation of the Peso is much lower than that of the dollar, typically about a 10th of a U.S. Dollar. Thus, it takes a small percentage of a dollar to buy one Peso. For this reason, the CME opted for a contract size of
500,000 which is a great deal bigger than those assigned to the Euro or the Swiss Franc futures. Each point in the Peso is equivalent to a $5 gain or loss for any trader with an open futures position.

Also unique to the Peso is the expiration months. The Peso has a contract listed (that expires in) each month as far as 13 months in advance. This is the only currency that allows traders to trade contracts expiring in each and every month of the year, they typically have quarterly expiration months. However, it takes more than an exchange simply listing a contract for speculators and hedgers to get involved. In fact, there is often very little, if any, open interest in any of the non-quarterly contracts (January, February, April, etc.). In other words, you should only trade the March, June, September, and December Mexican Peso futures contracts!

Despite all of the differences in the Peso relative to the other currencies, the calculations involved in trading it are very similar. Like the others you would simply take the difference between the purchase price and the sale price and multiply it by the tick value to reach the total profit or loss on a trade.
A trader that sells the Mexican Peso at .076425 and is forced to buy it back at a loss at .077385 would have realized a loss of 96 points or $480.

.077385 - .076425 = 96 loss

96 x $5 = - $480 commissions and fees add to the loss

The euro will need to roll over for the ES to attract sellers.

The euro currency has been on an impressive run (much to our dismay) but few have acknowledged the impact the currency markets are having on stocks and commodities. In the last 180 trading sessions, the euro and the e-mini S&P have settled in the same direction roughly 70% of the time. Thus, strength in the euro has helped hold the stock market afloat.

Similarly, commodities such as crude oil and copper have benefited from the change in currency valuation but might not fare so well if the euro finally succumbs to gravity. In short, if the dollar can find a way to reverse course (AKA the euro weaken) we should see bellwether commodities turn south and they could easily bring the S&P 500 with them. Keep an eye on the currency market, it could be ready to turn the corner!

The energy futures market is still in control

It will be difficult for the stock market to get much of anything going on the upside, without stability in the energy market. Both crude oil and natural gas have fallen to levels of despair for energy producers. Further, economies in oil rich areas such as Houston, and parts of New Mexico and Colorado, as well as the Bakken, are slumping significantly.

As is often the case with bubbles, sometimes they are only obvious after the fact. I should have known when my brother, a long-time member of the oil industry disclosed to me that oil field workers were paying New York style rents for run-down trailers near Farmington New Mexico (an oil rich area).

With oil valued above $100 it was clear the there was some exuberance that needed to be worked out, but few would have predicted a $30 handle a year and a half later. Nevertheless, here we are...and ironically, investors are praying for higher energy prices to avoid debt defaults that could send stocks reeling. Luckily, the Euro seems to have put in a long-term bottom..if this is the case, oil should eventually follow suit.

See our thoughts on this in the latest DeCarley Perspective: https://madmimi.com/s/ed5507

The NASDAQ futures weighed on stocks, but the broad market is marching on.

From a historical perspective, this week is not the time to be a stock market bear. As we've outlined, the market generally likes to move higher into Fed meetings and quarterly futures expiration also tends to put upward pressure on pricing. This is true, at least until the Friday morning Triple Witch. From there, things sometimes turn sour. Thus, the ES bears will likely have better entry points in the coming sessions if they are patient.

We've also heard chatter about a Bradley turn date occurring on the 20th of this month, and others are noting June 26th as a potential reversal date based on moon cycles. We don't normally pay attention to these types of things, but the fact that they coincidentally appear to be in line with the charts make them at least worth noting.

Wednesday's long squeeze quickly became the Thursday/Friday short squeeze

Although in the heat of the moment on Wednesday morning, most online and TV chatter suggested the capitulation had yet to come, it seems it already had. The ES has rebounded nearly 100 points from Wednesday's lows and crude oil has bounced nearly $5.00 per barrel. It is unfortunate that margin calls, and fear, likely left a handful of bulls watching the recovery from the sidelines after they had realizing massive loses. Unfortunately, when volatility picks up, so do these types of stories.

Although this type of stop loss running and squeezing out the weak hands has always been a part of the financial and commodity markets, I would argue that computerized trading has increased the frequency of exaggerated moves. In the same manner natural gas futures traded well beyond reasonable fundamentals for three for four days in December prior to a quick snap back rally, we saw the same nonsense in oil and, therefore, equities.

If it weren't for the no crying in commodities rule, we might have shed a tear. Luckily most clients were able to ride the storm with most positions in tact...and at least for today, the S&P, crude oil, and the 10-year note is all moving our way.