Q&A
What are the differences between trading different futures contracts like ZB, ZN, ZT, ZF, ZD, ZS, and ZW?
The speaker explains that certain futures contracts, such as the 5-year and 2-year Treasury notes, are harder to trade due to their complexity and lower liquidity. In contrast, the 30-year (ZB) and 10-year (ZN) Treasury notes are more liquid and suitable for retail investors. The speaker also mentions that agricultural futures like wheat (ZW), corn (ZC), and soybeans (ZS) are more accessible and liquid, with all contracts trading one tick off the mid price.
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Actionable takeawayRetail investors should focus on more liquid futures contracts like ZB and ZN for Treasury notes and ZW, ZC, and ZS for agricultural commodities.
Q&A
What futures options instrument would you suggest for another position?
The speaker suggests micro crude (MCL) or micro ES (MES) as suitable future options instruments. They also mention that ZFM6 is a viable option for micro futures trading, but other instruments like ZN or ZB are recommended for longer-term bond trading.
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Actionable takeawayConsider micro crude or micro ES for additional positions, or ZN/ZB for longer-term bond trading.
Q&A
Why did the CE have to crank up the margin for SL futures?
The increase in margin requirements for SL futures is attributed to market mechanics or potential conspiracy. The speaker suggests it could be due to the notional value of the trade increasing significantly, or the CME raising requirements due to concerns about market stability.
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Actionable takeawayMargin requirements for futures can increase due to changes in the notional value of the trade or decisions by exchanges to raise requirements for stability.
Q&A
Is buying a December CL future and selling a current month CL future a good strategy for a return to contango?
The speaker acknowledges that this is a common strategy for playing for a return to contango, but notes that it is not the same as simply buying a December CL future and selling a current month CL future. The speaker explains that the two are different deliverables and that the strategy involves a calendar spread. The speaker also notes that this strategy is challenging for retail traders due to capital requirements and the need for precise timing.
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Actionable takeawayA calendar spread involving CL futures can be used to play for a return to contango, but it requires careful consideration of capital requirements and market conditions.
Q&A
Can I buy a forward-dated MEES future?
No, you cannot buy a forward-dated MEES future. Instead, you can roll the futures contract quarterly (March, June, September, December) to maintain exposure. Rolling is a simple process that takes just a few seconds and is more efficient than holding a leveraged ETF.
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Actionable takeawayRoll MEES futures quarterly to maintain exposure without the drag of leveraged ETFs.
Q&A
Are we trading March futures?
The speaker is uncertain and suggests that the futures might be outdated, indicating a need to verify the correct expiration date for the gold futures being traded.
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Actionable takeawayVerify the correct expiration date for futures contracts to avoid trading outdated instruments.
Q&A
How do futures contracts settle?
Futures contracts do not settle into cash except for index futures that settle on a quarterly basis. All other futures settle physically, meaning the underlying asset is delivered. This is a key difference from stocks and options, which typically settle in cash.
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Actionable takeawayFutures contracts have different settlement mechanisms depending on the type of contract. Index futures settle in cash on a quarterly basis, while other futures settle physically.
Q&A
Is 6,000 the at-the-money option when spot is at 6,000 and futures are at 6,100?
The speaker clarifies that the at-the-money option depends on the underlying asset. If the option is based on the spot price, 6,000 is at-the-money. If it's based on the futures price, 6,100 is at-the-money. The key is to match the underlying asset of the option with the relevant price.
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Actionable takeawayTraders should ensure that the underlying asset of an option matches the relevant price (spot or futures) to determine at-the-money status.
Q&A
When is the best time to roll futures contracts during expiration?
The best time to roll futures contracts is before the expiration date, ideally before the market closes on the day of expiration. The speaker advises traders to roll out of expiring futures contracts before the expiration date to avoid the risk of the contract being closed out.
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Actionable takeawayTraders should roll out of expiring futures contracts before the expiration date to avoid the risk of the contract being closed out.
Q&A
Can you give us some keys to where do I start scalping futures?
The transcript discusses the history and techniques of scalping futures, emphasizing the importance of understanding market mechanics and the evolution of trading tools. It also highlights the need for experience and the use of specific strategies such as hedging and leveraging market knowledge.
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Actionable takeawayTo start scalping futures, one should understand the market mechanics, use hedging strategies, and leverage experience with market tools and techniques.
Q&A
Can you give us some keys to where do I start scalping futures?
The speaker recommends starting with micro futures contracts like MEES and MNQ due to their liquidity and lower capital requirements. They emphasize starting small, using one contract, and staying with it until comfortable. The speaker also highlights the importance of understanding tick and handle sizes for these contracts.
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Actionable takeawayStart with micro futures contracts like MEES and MNQ, understand tick and handle sizes, and practice with one contract until comfortable.
Q&A
What is the expected move for MEES?
The expected move for MEES is approximately 50 handles or $250.
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Actionable takeawayUnderstanding the expected move helps in setting realistic profit targets and managing risk effectively.
Q&A
What is going on in the futures market that makes scalping so hard?
The speaker suggests that the difficulty of scalping in the futures market is due to the nature of the market itself, with layers of activity occurring in microseconds and the inherent challenges of the market structure. It is implied that the market's behavior is consistent and does not simplify over time.
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Actionable takeawayThe speaker's answer indicates that scalping in the futures market is inherently difficult due to the market's structure and behavior, which remain consistent over time.
Q&A
What broker is good for futures with low margin minimums?
The speaker states that CME sets the requirements for margin minimums, and all firms must adhere to these numbers. Some firms may offer lower intraday margin requirements, ranging from 25% to 50%. The speaker advises traders to contact their firm to inquire about intraday futures margins and whether their technology supports such features.
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Actionable takeawayTraders should contact their broker to inquire about intraday margin requirements and whether their technology supports such features.
Q&A
What is your typical hedging strategy?
The speaker prefers using futures for hedging, specifically mentioning the use of micro futures for smaller accounts. They also discuss the use of ES or NQ futures for delta neutralization, and the use of specific stocks like MU for hedging when necessary. The speaker also mentions the importance of account size and the availability of micro futures.
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Actionable takeawayUsing futures, particularly micro futures, is a preferred method for hedging in the speaker's strategy. The choice of futures or stocks depends on the specific market exposure and account size.
Q&A
Do you need to be approved for futures to get quotes at that firm?
The speaker confirms that they do not need to be approved for futures to see quotes at that firm, but they were eventually approved for futures.
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Actionable takeawayQuote access can be obtained without prior approval for futures, but approval may be required for certain trading activities.
Q&A
How do I turn the confusion from futures markets from a negative to a positive?
To turn the confusion from futures markets into a positive, start with micro futures and learn by doing. Experiment with futures options on less volatile instruments like 10-year notes or ES options. Reduce your position size by about a third compared to listed options to account for the additional leverage in futures. Focus on a few liquid names and avoid getting buried in a vast universe of commodities.
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Actionable takeawayStart with micro futures, experiment with less volatile instruments, reduce position size, and focus on a few liquid names.
Q&A
Does the CME charge all brokers the same fee?
Yes, the CME charges all brokers the same fee. The fees are standardized, and brokers do not charge different rates for the same product. Retail traders can find detailed fee breakdowns on the CME's help section under futures products.
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Actionable takeawayRetail traders can expect standardized fees from the CME, and detailed fee information is available on the CME's website.
Q&A
What are the considerations for trading futures with a small account size?
The speaker suggests that small account sizes can be accommodated by using smaller contract sizes, such as micro futures or 1 oz gold contracts. It is important to choose a brokerage that offers these products and to ensure that the account size is suitable for the firm's requirements. The speaker also emphasizes the importance of trying different products to see what works best for the trader.
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Actionable takeawayRetail traders with small accounts can consider using micro futures or smaller contract sizes to participate in the futures market. It is important to choose a brokerage that offers these products and to test different products to find what works best.
Q&A
Do you primarily sell naked options on futures like your approach with equity options? What delta do you typically target?
The speaker primarily sells naked options on futures, targeting a delta range of 16 to 25, with an ideal target of 22. This range is chosen for maximizing premium while minimizing risk of price breaches, and the mechanics are consistent across different instruments.
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Actionable takeawayTargeting a delta of 22 for naked options on futures is optimal for maximizing premium while minimizing risk of price breaches.
Q&A
When Tom says trade small and trade often, how many contracts per trade does he normally buy?
The number of contracts per trade varies depending on the trader's preference and risk tolerance. The average trade size in the industry is around three to four contracts for options and slightly over one contract for futures. The smallest trade size can be as low as one lot, while some traders may trade up to 10 or more lots.
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Actionable takeawayTrade size should be based on individual risk tolerance and platform settings, with the smallest default size on the platform being a practical benchmark for 'small' trades.
Q&A
How do you determine the point at which to take profits in futures trading?
In futures trading, profits are typically taken at a certain percentage of the expected move. For example, if the expected move in the S&P is 40 points, a reasonable expectation is to take profits at 25% of that move. This approach helps manage risk and capitalize on market trends effectively.
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Actionable takeawayTraders should consider taking profits at a percentage of the expected move to manage risk and optimize returns.