Trading in the stock indices has been dull and Implied Volatility (IV) and IV Rank (IVR) are at very low levels. Trading in many Futures contracts though has been good which is why we think you need to be familiar with them. Copper (/HG) has been one of those contracts with good two way trade. The problem though is that the notional value of a Copper Future is rather hefty. Is there a way we can trade Copper without a huge allocation of capital? Our Futures expert, Pete Mulmat , joins the guys to share some of his extensive knowledge on Futures in general, Copper specifically and explain a trade idea he has that can be done by almost any trader.
Pete displayed a chart produced by our research team that showed the implied ranges for 5 and 30 days based upon a 1 Standard Deviation (SD) expected move using the Implied Volatility figures. The margin is not that high but the possible market moves may be too large for many traders. Another chart showed copper in terms of its notional value which drove home that point.
A chart of the current price curve in Copper showed it is in Contango. Pete explained why we wouldn’t use either mini contracts or the Futures Options. Another graph showed that the Copper Calendar spread between September and December is at a rather extreme level. Pete laid out his trade in a table and displayed a graph showing how the spread can move over a 10 day period. The guys liked the idea. Tony reviewed the mechanics of the trade with Pete to make sure he had it right. The spread trade can be profitable if Copper moves up or down although it is slightly more likely to be profitable while Copper is rallying.
For more information on Copper Futures see:
Closing The Gap - Futures Edition from May 1, 2015: "Copper and the Aussie Dollar"
Market Measures from July 21, 2015: "Metals: Gold, Silver and Copper"
Closing The Gap - Futures Edition from August 28, 2015: "Copper Futures /HG and /ES"
Watch this segment of Closing the Gap - Futures Edition with Tom Sosnoff, Tony Battista and our Futures expert Pete Mulmat for the key takeaways and an interesting Copper Calendar spread idea that you may want to try and which requires little margin.
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