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Contributor

Market advisor

A market advisor has been trying to sell me on a strategy of buying calls with strikes in the 4.00 to 4.10 area when the market is near 3.70 and then selling futures when they get to 4.10.  He says his clients have been making great profits for the last four years doing this.  I told him I have been selling cash at 4.05 to 4.30 for the last four years and he said I have been missing out.  I can't find enough historical options data to know if this is true.  What do you think? 

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5 Replies
Honored Advisor

Re: Market advisor

If you have avoided calls and sold 4-430 without them,
Better than I did.
Last three yes been pretty tough. Not many days that brought higher prices that strong.
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Honored Advisor

Re: Market advisor

Years. Not yes
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Contributor

Re: Market advisor

Sadly, I didn't get everything sold that high, but he isn't recommending his strategy for more than 50% of expected production.   What he is saying is to sell half of expected production for cash above 4.00 and use his strategy for the other half.  What I think generally happens is:  Buy 4.10 dec calls at .22 when nearby futures are at 3.70,  then sell 4.10 to 4.20 dec futures when (and if) they get there.  If futures continue to rise, you are protected from margin calls.  If futures fall after that, you have 4.10 to 4.15 position less the .22 call price. (3.88 to 3.93 floor) The problem I have is: if the price flounders around and goes lower, you have a lower cash price and also waste .22 on a now worthless call.    i.e.  Futures go back to 3.70 without you taking a futures position, then you are at 3.70-.22 = 3.48.

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Highlighted
Frequent Contributor

Re: Market advisor

IMO, these brokers are better sales ppl than marketers.  Getting you going in 2 or 3 different directions at one position they make some really good commissions.  Been there done that.  Some work better for them than you. Some will work though.

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Veteran Advisor

Re: Market advisor

It sounds to me like you've been doing OK selling the cash.  If futures get to some number you like you can sell them as a hedge and buy them back later and hopefully make some money.  Buying calls in this case is a speculative move to me but then I'm not a sophisticated trader.  Maybe one of the regulars will jump in and walk us all through it.

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