Disclosure of Trading Methodology

Currency Performance Homepage

1) Disclosure of Trading Methodology (25:46)

Message me with any questions.

1.1 ) Option Collars
1.2) Working Examples of Collaring Positions
1.3) 7 year Euro Currency chart, monthly, no analysis
1.4) About Bollinger Bands
1.5) Understanding Moving Averages

1.6) 7 year Euro Currency analysis chart, monthly Data
1.7) Technical Opinion (12 secondary indicators)
1.8) Euro Currency March 2015 to June 2015 daily data
1.9) Explaining Call Options (Short and Long)
1.10) Explaining Put Options (Short and Long)

2) Euro-FX – Today’s Technical Opinion Symbol (E6)

2.1) 15 year chart using monthly data
2.2) 7 year chart, monthly Data
2.3) 3 year chart, weekly data
2.4) 1 year chart, weekly data
2.5)
9 month chart, daily data

2.6) 3 month chart, daily data
2.7)
5 day chart 60 minute data
2.8) 1 day chart, 10 minute data
2.9) Today’s Technical Opinion
2.10) Ranges & Price Performance
2.11) Support & Resistance
2.12) Barchart Quotes, All Deliveries
2.13) Barchart Options Quotes
2.14) CME Futures Quotes, All Deliveries
2.15) CME Option Quotes

2.16) Contract Specifications each 0.01 = $12.50
2.17) Exchange Margin Requirement per 125,000 Euro FX
2.18) EUR Collar Spreadsheet

3) British Pound – Today’s Technical Opinion Symbol (B6)

3.1) 15 year chart using monthly data
3.2) 7 year Chart, monthly Data
3.3) 3 year chart, weekly data
3.4) 1 year chart, weekly data
3.5)
9 month chart, daily data

3.6) 3 month chart, daily data
3.7)
5 day chart 60 minute data

3.8) 1 day chart, 10 minute data
3.9) Today’s Technical Opinion
3.10) Ranges & Price Performance
3.11) Support & Resistance
3.12) Barchart Quotes All Deliveries
3.13) Barchart Options Quotes
3.14) CME Futures Quotes All Deliveries

3.15) CME Option Quotes
3.16) Contract Specifications each 0.01 = $6.25
3.17) Exchange Margin Requirement per 62,500 Pounds
3.18) GBP Collar Spreadsheet

4) Japanese Yen Today’s Technical Opinion Symbol (J6)

4.1) 15 Year chart using monthly data
4.2) 7 Year Chart, monthly Data
4.3) 3 Year chart, weekly data
4.4) 1 year chart, weekly data
4.5)
9 month chart, daily data

4.6) 3 month chart, daily data
4.7)
5 day chart, 60 minute data

4.8) 1 day chart, 10 minute data
4.9) Today’s Technical Opinion
4.10) Ranges & Price Performance
4.11) Support & Resistance
4.12) Barchart Quotes All Deliveries
4.13) Barchart Options Quotes
4.14) CME Futures Quotes All Deliveries
4.15) CME Option Quotes

4.16) Contract Specifications each 0.01 = $12.50
4.17) Exchange Margin Requirement per 12,500,000 Yen
4.18) JPY Collar Spreadsheet

5) Australian Dollar Today’s Technical Opinion Symbol (A6)

5.1) 15 Year chart using monthly data
5.2) 7 Year Chart, monthly Data
5.3) 3 Year chart, weekly data
5.4) 1 year chart, weekly data
5.5)
9 month chart, daily data

5.6) 3 month chart, daily data
5.7)
5 day chart 60 minute data

5.8) 1 day chart, 10 minute data
5.9) Today’s Technical Opinion
5.10) Ranges & Price Performance
5.11) Support & Resistance
5.12) Barchart Quotes All Deliveries
5.13) Barchart Options Quotes
5.14) CME Futures Quotes All Deliveries
5.15) CME Option Quotes
5.16) Contract Specifications each 0.01 = $10.00
5.17) Exchange Margin Requirement per 100,000 Australian
5.18) AUD Collar Spreadsheet

6) Canadian Dollar Today’s Technical Opinion Symbol (D6)

6.1) 15 Year chart using monthly data
6.2) 7 Year Chart, monthly Data
6.3) 3 Year chart, weekly data
6.4) 1 year chart, weekly data
6.5)
9 month chart, daily data

6.6) 3 month chart, daily data
6.7)
5 day chart 60 minute data

6.8) 1 day chart, 10 minute data
6.9) Today’s Technical Opinion
6.10) Ranges & Price Performance
6.11) Support & Resistance
6.12) Barchart Quotes All Deliveries
6.13) Barchart Options Quotes
6.14) CME Futures Quotes All Deliveries
6.15) CME Option Quotes
6.16) Contract Specifications each 0.01 = $10.00
6.17) Exchange margin requirement per 100,000 Canadian
6.18) CAD Collar Spreadsheet

7) Swiss Franc Today’s Technical Opinion Symbol (S6) (not traded)

7.1) 15 Year chart using monthly data
7.2) 7 Year Chart, monthly Data
7.3) 3 Year chart, weekly data
7.4) 1 year chart, weekly data
7.5)
9 month chart, daily data

7.6) 3 month chart, daily data
7.7)
5 day chart 60 minute data

7.8) 1 day chart, 10 minute data
7.9) Today’s Technical Opinion
7.10) Ranges & Price Performance
7.11) Support & Resistance
7.12) Barchart Quotes All Deliveries
7.13) Barchart Options Quotes
7.14) CME Futures Quotes All Deliveries
7.15) CME Option Quotes

7.16) Contract Specifications each 0.01 = $12.50
7.17) Exchange Margin Requirement per 125,000 Swiss

8) Program Structure and Account Opening Procedure

8.1) (ATA’s), What They Are and How They Work
8.2) The Fee Structure For This Program
8.3) Defining Overall Risk For Your Account
8.4) How Balances Are Guaranteed Plus or Minus Trading
8.5) How To Open An Account

9) Educational Resources

9.1) Basics of the Futures Markets
9.2) Basics of Futures Options
9.3) Fundamentals and FX Futures
9.4) Trading the FX Markets
9.5) Australian Dollar Futures
9.6) British Pound Futures
9.7) Canadian Dollar Futures
9.8) Japanese Yen Futures
9.9) Euro FX Futures
9.10) Introduction to Order Types

9.11) Detailed Description of Order Types With Examples
9.12) Understanding Futures Margin Requirements
9.13) Understanding Moving Averages
9.14) About Bollinger Bands & How to Set Them
9.15)
Understanding Support and Resistance

9.16) Defining Trend, Trade Duration & Number of Contracts Traded
9.17) Explaining Call Options (Short and Long)
9.18) Explaining Put Options (Short and Long)
9.19) Option Collars
9.20) Working Examples of Collaring Positions
9.21) What is the European Central Bank?
9.22) Understanding FX Quote Conventions
9.23) FX Futures Pricing and Basis
9.24) Understanding the FX Delivery & Settlement Process
9.25) Hedging FX Risk
9.26) A Look at FX Exchange For Physical (EFP)
9.27) FX Spot Markets vs. Currency Futures
9.28)
Test this strategy on any of these 17 related and unrelated markets

If you have any questions send a message or contact me

Regards,
Peter Knight Advisor

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Disclosure

 

Global Stock Indices I trade

Message me and I’ll show you how to use these

1) S&P 500 Symbol (ES)

1.1)   1983 – 2018 chart
1.2)   10 Year, Monthly Data
1.3)   3 Year, Weekly Data
1.4)   6 Month Daily Data (ESZ18)
1.5)   10 Day Using 60 Minute (ESZ18)
1.6)   Today using 10 minute bars (ESZ18)
1.7)   Today using 5 minute data (ESZ18) 1
1.8)   Today’s Technical Opinion (ESZ18)
1.9)   Ranges & Price Performance (ESZ18)
1.10) Support & Resistance (ESZ18)
1.11) Barchart Quotes, All Deliveries
1.12) Barchart Options Quotes
1.13) CME Futures Quotes, All Deliveries
1.14) CME Option Quotes

1.15) Contract Specifications each 1.00 = $50.00
1.16) S&P Performance Homepage
1.16) Exchange Margin Requirement
1.17) S&P 500 Collar Spreadsheet

2) Euro Stoxx 50 Symbol FX

2.1) 6 Month Chart, Daily Data
2.2) 3 Year Chart, Weekly Data
2.3) 7 Year Chart, Monthly Data
2.4) Today’s Technical Opinion
2.5) Futures Quotes
2.6) Options Quotes
2.7) Contract Specifications

3) Stoxx E600 Banks Symbol FA

3.1) 6 Month Chart, Daily Data
3.2) 3 Year Chart, Weekly Data
3.3) 7 Year Chart, Monthly Data
3.4) Today’s Technical Opinion
3.5) Futures Quotes
3.6) Contract Specifications

4) Dax Index Symbol DY

4.1) 6 Month Chart, Daily Data
4.2) 3 Year Chart, Weekly Data
4.3) 7 Year Chart, Monthly Data
4.4) Today’s Technical Opinion
4.5) Futures Quotes
4.6) Options Quotes
4.7) Contract Specifications

5) CAC 40 Symbol MX

5.1) 6 Month Chart, Daily Data
5.2) 3 Year Chart, Weekly Data
5.3)
7 Year Chart, Monthly Data

5.4) Today’s Technical Opinion
5.5) Futures Quotes
5.6) Options Quotes
5.7) Contract Specifications

6) Swiss Market Index Symbol SZ

6.1) 6 Month Chart, Daily Data
6.2) 3 Year Chart, Weekly Data
6.3)
7 Year Chart, Monthly Data

6.4) Today’s Technical Opinion
6.5) Futures Quotes
6.6) Options Quotes
6.7) Contract Specifications

7) Hang Seng Index Symbol HS

7.1) 6 Month Chart, Daily Data
7.2) 3 Year Chart, Weekly Data
7.3) 7 Year Chart, Monthly Data
7.4) Today’s Technical Opinion
7.5) Futures Quotes
7.6) Options Quotes
7.7) Contract Specifications

8) Nikkei 225 (JPY) NL

8.1) 6 Month Chart, Daily Data
8.2) 3 Year Chart, Weekly Data
8.3) 7 Year Chart, Monthly Data
8.4) Today’s Technical Opinion
8.5) CME (JPY) Futures Quotes
8.6) CME(JPY) Futures contact specifications
8.7) JPX Futures Quotes
8.8) Options Quotes
8.9) Contract Specifications

9) ASX 200 Index Symbol AP

9.1) 6 Month Chart, Daily Data
9.2) 3 Year Chart, Weekly Data
9.3) 3 Year Chart, Monthly Data
9.4) Today’s Technical Opinion
9.5) Futures Quotes
9.6) Options Quotes
9.7) Contract Specifications

10) FTSE 100 Symbol X

10.3) 6 Month Chart, Daily Data
10.2) 3 Year Chart, Weekly Data
10.1) 7 Year Chart, Monthly Data
10.4) Today’s Technical Opinion
10.5) Futures Quotes
10.6) Options Quotes
10.7) Contract Specifications

11) Our Top Stock Index ATA Trading Program

12) Metals Analysis & Trends

13) Currency Analysis & Trends

14) Exchanges I Trade 

15) Brokerage 

16) Fee Structure 

17) How Balances Are Protected 

18) How To Define Overall Risk On Your Account

19) Open An Account

20) Schedule a time to review trading programs with me in the sector(s) of your choice.

If you have questions send a message or contact me.

Regards,
Peter Knight Advisor

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Risk Disclosure

 

What is an Index Future?

Stock Index Education Home Page

Overview

Equity Index futures are “futures contracts” on equity indices. They are cash settled contracts and the majority have quarterly expiration dates scheduled for the months of March, June, September, and December.

Equity Index futures provide market participants with tools to efficiently hedge or express an opinion on an equity index market, practically 24 hours a day, 6 days a week.

Benchmarks: The Backbone of Equity Index Futures

CME Group focuses on many of the widely followed and globally recognized equity index benchmarks. CME Group Equity Index products include both equity index futures and options on equity index futures. Currently, this represents 59 equity index futures and 29 equity index options. CME Group Equity Index products include a number of well-known indices.

Some of these are available in a variety of different sizes to accommodate different trading needs. For example, we offer  E-mini S&P 500® futures contracts, which are one-fifth the size of standard S&P 500®futures.

Spanning the globe, our Equity Index suite includes US dollar-based products such as the S&P 500®, the Nasdaq 100, and the Dow Jones Industrial Average as well as products covering other key markets, such as the FTSE Russell 100, a UK-based index; the Nikkei 225, a Japanese-based index; and the FTSE China 50, a China-based index.

As the world’s largest derivatives exchange, CME Group offers equity traders a deep and liquid marketplace to speculate or hedge their portfolio. What does all this mean? In short, CME Group offers a variety of Equity Index products suitable for many types of end users.

 

 

Identifying a trend changes in Gold – fundamentals that fuel the moves

Gold Performance Homepage

1) Identifying a trend change in Gold from down to up

1.1) Price action will move above the EMA9 (red line) on the daily data chart
1.2) Next this chart using weekly price data
1.3) Finally this chart using monthly data
1.4) The overall of the 13 trend confirmation indicators will a 50%+ buy

2) Fundamentals that fuel the moves.

After gold’s spectacular rally from $280 per ounce in 2002 to $1,900 in 2011, this nine-year rally closely tracked the 2002-2011 bear market in the U.S. dollar (USD).  Moreover, expectations of gold investors that the Fed’s post-crisis quantitative easing (QE) programs would trigger high rates of inflation went unrealized.  So far as we can tell, QE didn’t spark much of anything, least of all consumer price inflation.

Gold’s bear market coincided with the bull run in USD, the end of QE and the Fed’s tightening cycle.  Increased gold mining supply hasn’t helped either.  Indeed, gold and the Bloomberg U.S. Dollar Index still have a strong negative correlation (Figure 3). Although gold’s negative correlation to Fed funds futures has diminished somewhat, anticipation of higher rates is not good news for gold

3) Gold has a Consistent and Strong Negative Correlation to the U.S. Dollar.

Figure 1: Gold has a Consistent and Strong Negative Correlation to the U.S. Dollar.

As such, the big questions for gold investors is how much longer will the USD bull market last and how far will the Fed’s tightening cycle go?  The answers to these intertwined questions will play a major role in determining when the next gold bull market will begin.

4) Gold’s Correlation to Fed Funds Futures is Weaker Than in the Past but Is Still Negative.

Figure 2: Gold’s Correlation to Fed Funds Futures is Weaker Than in the Past but Is Still Negative.

Monetary and fiscal policy are pulling the dollar in opposite directions.  Relative to the rest of the world, U.S. monetary policy is tight and becoming tighter.  The Fed has already hiked rates seven times and will almost certainly go an eighth time in September.  (The Federal Open Market Committee (FOMC) meets on September 25/26). Moreover, its “dot plot,” a forecast survey of FOMC members, suggests that it will go another six times between December 2018 and the end of 2020.  No other central bank is undertaking a similar trajectory of rate increases.  The Bank of Canada and the Bank of England are hiking rates about once or, at most, twice per year.  The European Central Bank and the Bank of Japan won’t likely hike rates for years, although they may halt their QE programs by the end of the decade. Tighter U.S. monetary policy is sending the U.S. dollar higher versus most other currencies and against gold, which has the disadvantage of paying no interest on holdings.

By contrast, U.S. fiscal policy is becoming looser just as most other countries continue to reduce deficits.  Since the end of 2016, the U.S. budget deficit has expanded from 2% to 4% of GDP (Figure 3).  Normally, an expansion of U.S. budget and trade deficits bodes poorly for the U.S. dollar (Figure 4) and is supportive for gold.

5) U.S. Deficits are Expanding While Europe’s (and Most Others) Shrink.

Figure 3: U.S. Deficits are Expanding While Europe’s (and Most Others) Shrink.

6) All Else Being Equal, Bigger Deficits are Usually Bearish for the Dollar.

Figure 4: All Else Being Equal, Bigger Deficits are Usually Bearish for the Dollar.

The December 2017 tax cut and the March 2018 spending increases were bearish for the U.S. dollar and supported gold for a while, but U.S. fiscal policy appears to be on a stable trajectory.  Further tax and spending legislation is unlikely until after the midterm elections in November (at the earliest) and more likely not until after the next presidential election in 2020.  As such, monetary policy has been left to drive the dollar higher over the past six months as continued Fed tightening appears to have sparked the debut of an emerging market currency crisis (Figure 5)

7) Crashing Emerging Market Currencies Mean a Soaring USD.

Figure 5: Crashing Emerging Market Currencies Mean a Soaring USD.

While monetary and fiscal policy may be in a tug of war currently, this won’t last forever.  Eventually, the Fed will stop tightening.  That alone could be bearish for USD and bullish for gold, as it will allow investors to focus on the widening U.S. fiscal deficits.  Moreover, if the Fed hikes too much, resulting in a recession, it will not only have to stop hiking rates, it would have to ease monetary policy in a hurry.  Plus, when the economy goes into a recession, budget deficits typically explode, rising by 4% of GDP on average.  That could potentially explode the deficit from 4% of GDP currently to 8%. The combination of wider fiscal deficits and easing monetary policy would be toxic for the U.S. dollar and would likely be a godsend for gold investors.

As such, so long as the Fed keeps tightening, gold is more likely than not to remain under downward pressure. This will be especially true if the emerging market currency crisis broadens to include more countries, sending USD higher.  However, if the Fed overtightens, it could prove extremely bullish for gold when the central bank is forced to reverse course and ease policy.  Watch the Fed’s dot plot forecast closely for hints as to where it believes it can take monetary policy in the future.

Lastly, there is the issue of China and the trade war.  So far, the trade war has been bullish for the U.S. dollar and probably, on balance, not good news for gold.  Typically, foreign currencies react to news of higher U.S. tariffs by selling off, and a stronger USD, as we have seen, is usually bad news for gold. However, if the U.S.-Sino trade dispute sparks a slowdown in Chinese growth, this could ultimately prove to be bearish for every commodity in the world save one: gold.  China’s GDP growth rate correlates negatively with gold prices: stronger Chinese growth is often bearish for gold, whereas weaker growth is often bullish (Figure 6).

8) Stronger Chinese Growth is Often Bearish for Gold.

Figure 6: Stronger Chinese Growth is Often Bearish for Gold.

Chinese growth is burdened by high debt levels, trade uncertainty and an increasingly overvalued currency.  If Chinese growth slows, it may have to devalue its currency at some point.  The moment of devaluation, if and when it happens, will probably be bearish for gold.  However, the aftermath could be quite bullish.  A stronger dollar could force the Fed to stop tightening and could expand the U.S. trade deficit, setting the stage for eventual dollar weakening and gold strength.

Fed tightening has been a difficult experience for gold investors but each time the Fed hikes rates, it increases the likelihood of a downturn in the U.S. economy. For gold, it’s difficult to imagine what could be more bullish than a U.S. recession.

9) Bottom Line

A strong dollar, tighter U.S. monetary policy have been bearish for gold.

Monetary and fiscal policies are pulling USD in opposite directions.

If the Fed overtightens, U.S. fiscal and monetary policy will eventually pull the dollar in the same direction – downward.

Falling U.S. interest rates and a weakening dollar could be extremely bullish for gold but neither of these scenarios is happening yet, so it may be 3 months to 1 year too soon to call a gold bull market.

If you have questions send a message or contact me

Regards,
Peter Knight Advisor

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Risk Disclosure

 

 


Trading Opportunities in Equity Index Futures

Trading Opportunities

Due to their wide acceptance as benchmarks and deep liquidity, Equity Index and Select Sector futures can be used by risk managers and traders for a variety of purposes. These flexible products can be employed in numerous trading and hedging strategies.

Possible Trading Strategies

Examples of possible trading strategies include:

Outright bull/bear directional trades
Beta replication/beta adjustment
Portable alpha
Conditional rebalancing
Spreads
Sector rotation

Index Spreads

Another possible trading strategy is an index spread. A spread is the simultaneous purchase and sale of two futures contracts. An index spread is a common and effective trading strategy. The strategy is designed to express the relative value between index contracts rather than an outright market direction bias.

How Spreads Are Used

Outright long or short positions in Equity Index futures can be easily established to reflect a trader’s point of view regarding that index’s next directional move or trend. For example, if a trader believes that the S&P 500 Index is over-valued and will trade lower soon he may sell E-mini S&P 500 futures to express that view.

Asset managers that want to use Equity Index futures to replicate exposure to an index may buy futures contracts and use the residual capital for cash management purposes or alpha producing tactical strategies.

Another possible trading strategy is an index spread. Consider an index spread, specifically, spreading the NASDAQ-100 to the S&P 500.

Advantages of Index Spreads

Because spread trades involve both a long and a short position in highly correlated contracts, they are generally viewed as less volatile and therefore less risky than an outright position in a single contract. Additionally, since spread positions generally reflect lower market risk, there are lower margin requirements.

Example of an Index Spread

Let’s look at an example of a possible equity index spread. The NASDAQ-100 Index is heavily weighted to the technology sector. The S&P 500 Index, by contrast, is recognized as having a broad, diversified constituency and represents the broad market. What makes this type of trade possible is both of these indices, while slightly different, have a high degree of price correlation. In other words, they tend to trade directionally in a similar pattern.

In order to construct this spread, we must first calculate a Spread Ratio. The spread ratio is defined as the notional value of one index future divided by the notional value of another.

In this case, we will divide the notional value of the NASDAQ-100 futures by the notional value of the S&P 500 futures.

How the Trade Might Play Out

A portfolio manager (PM) believes the tech sector is at risk versus the broad market. He is willing to express this opinion with a $100 million equivalent risk position, leading the PM to take the following actions:

The PM sells the E-mini NASDAQ-100/E- mini S&P 500 spread. First calculating the spread ratio, the notional value of the NASDAQ Index equal to 4711.50 x $20 dollars, or $94,230 per contract divided by a notional value of E-mini S&P of 2093.00 x $50 or one $104,650 per contract. Our spread ratio, then, is equal to $94,230 ÷ $104,650 per contract. This comes to 0.9004 E-mini S&P 500 futures for every one E-mini NASDAQ-100 futures.

Divide the notional value of the E-mini NASDAQ-100 futures into the $100 million dollar risk assumption, and you get 1061 NASDAQ-100 futures contracts. Applying the spread ratio of 0.9004 to 1061 results in an equivalent E-mini S&P 500 futures position of 955 contracts. Since the trader believes the tech sector is overvalued versus the broad market, he will sell 1061 E-mini NASDAQ futures and simultaneously buy 955 E-mini S&P 500 futures.

At this point, the trader believes the valuations have normalized. Now, he simply unwinds the spread by executing orders opposite to the original trade. He would do this by purchasing E-mini NASDAQ futures and selling the E-mini S&P 500 futures.

If you have questions send me a message or schedule an online review .

Regards,
Peter Knight Advisor

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Cost Efficiencies between NASDAQ-100 futures and ETF

While ETF management fees have generally decreased for many of the larger ETFs such as SPY, the costs to trade futures has shown to be significantly less than ETFs. It is thus no surprise that the NASDAQ-100 futures out-trade in daily dollar notional terms its ETF counterpart, the QQQ.

– Source Bloomberg

The introduction of futures and ETFs on the NASDAQ-100 Index met with extraordinary success. Both launched in 1999, as the technology stock rally was gaining momentum. Pension funds, money managers, hedge funds and active retail traders quickly adopted the new contracts and they are now some of the most liquid products traded. But replicating stock indices like the NASDAQ-100 using futures or ETFs is not always a cut and dry decision.

All-In Costs

Determining the all-in costs of the two products requires more detailed analysis. Different users have different strategic uses for the products and thus no one size fits all exists when it comes to determining which is the better or more cost-efficient vehicle. The only way to determine the most cost-efficient instrument for a particular user, is to do a detailed analysis that considers various scenarios such as holding periods, size of trade, market impact, transaction costs, etc. that are unique to the investor’s situation.

To this end, CME Group has put together a variety of content to help the investor determine the best option. In addition to several papers on the topic, CME Group developed the Total Cost Analysis Tool (TCA), which allows analysis of many CME Group stock index futures and their corresponding ETF. For this module, we will focus on the E-mini NASDAQ-100 and the NASDAQ-100 ETF (Ticker: QQQ).

If you have questions send me a message or schedule an online review .

Regards,
Peter Knight Advisor

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E-mini Nasdaq 100 Futures versus Nasdaq ETFs

In 1999, stocks were riding a 17-year bull market.  Outperforming all other sectors were technology stocks as they were in a massive up rise that dwarfed the major averages.  During this time two products were launched that would change the face of investing in technology. In March, the Nasdaq 100 ETF (ticker: QQQ) was launched and became quite successful. A few months later, CME Group introduced an E-mini Futures contract on the Nasdaq 100 index and it too, became a hit relatively quickly.  Investors would be able to invest in a basket of the top members of the technology sector with the click of a mouse.  Moreover, both products had extremely high correlations since both tracked the Nasdaq-100 cash index.  This high correlation allows for hedging and spreading opportunities for investors.

And with the convergence of the internet, on-line trading and a major bull market in tech shares (not to mention the huge success of the E-mini S&P 500), both products met with tremendous success.  But over the last 19 years since the launch of these two products, the dollar flows into the E-mini Nasdaq 100 futures (Ticker: NQ) pulled away from the Nasdaq 100 ETF (QQQ) and now are far greater.

When you compare futures like the NQ with QQQ ETF, it should come as no surprise why futures far out-trade ETFs.   We created this module, so you could see the advantages of trading Nasdaq futures over ETFs.   Let’s do a detailed comparison of the futures with ETFs and see why futures are the more compelling instrument.

Benefit Nasdaq 100 Futures (NQ) Nasdaq 100 ETF (QQQ)
Management fees None, there are no annual management fees with NQ futures QQQ has .20 percent annual management fees
Capital efficiencies Futures margin is capital efficient, with performance bond margins usually less than 5% of notional amount ($5,800 currently) Reg-T margins with stocks and ETFs are 50% of the value of the stock or ETF .  This is far larger than futures.
24-hour trading access Yes—trades nearly 24-hrs daily; beginning Sunday evening through Friday afternoon While some firms offer “after hours” trading, ETFs can’t be traded 24 hours a day.
Liquidity Primary futures contracts such as the E-mini, Treasuries, Crude, Metals all far out trade (in dollar terms) their ETF counterpart (see chart below) Good liquidity but not as much critical mass as futures       (see chart below)
Tracking to underlying Futures track underlying index very closely, minimizing tracking error Some ETFs have major tracking error. QQQ tracks closely
Tax advantages Profitable short-term trades with futures will pay significantly less in taxes than with an ETF due to IRS Section 1256 treatment (60/40 blend of short and long-term gains) All short-term profits with ETFs pay ordinary income rates.

Clearly, futures offer some compelling advantages to large and small investors alike. These advantages have not gone unnoticed by equity/technology investors.  In fact, if you look at the average daily dollar volume comparisons between Nasdaq futures and their corresponding ETF (see figure 2 highlighted in red), you will notice that futures trade 8x the average daily dollar amount of their ETF counterpart.  In addition, futures on Treasuries, Crude oil and Gold trade far greater notional amounts per day than their corresponding ETFs each day.

Figure 2:   Source:  CME Group, Bloomberg

While it is true that both Futures and ETFs are regarded as two of the most successful instruments ever introduced, futures hold the lead in many categories in a head to head comparison.

If you have questions send us a message or schedule an online review .

Regards,
Peter Knight Advisor

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E-mini NASDAQ-100 Futures Contract vs FANGs

The Advantages of Trading NASDAQ-100 Futures vs. FANGs

After losing nearly 75% of its value during the technology stock bear market in 2000-01, the Nasdaq 100 Index slowly made its way back to all-time highs. Traders have taken note too as the E-mini Nasdaq 100 futures now trade about $60 billion a day* in notional volume (*YTD May 2018).Since the birth of the internet, and with the recent meteoric rise of mobile devices, the technology sector has been a closely watched and heavily invested segment of the marketplace.

And in the last few years in particular, the FANG stocks, comprised of Facebook, Amazon, Netflix and Google, have been the most talked about stocks in the exciting tech sector. All the FANG members are fast growing, large-cap tech issues that have brought extraordinary gains for investors. Money flows have been great into the four stocks.

As the chart (Figure 1) below shows, FANGs also correlate very highly with the NASDAQ-100 Index, allowing traders to spread or hedge FANGs versus E-mini NASDAQ-100 futures. Correlations are around .85 to .92 over time.

Figure 1

Source: Bloomberg

But, as popular as the FANGs have become, the E-mini NASDAQ-100 futures (ticker symbol: NQ) have garnered far more interest and transactional volume. In fact, the critical mass in the NASDAQ-100 futures dwarfs all the FANG stocks together.

The NASDAQ-100 Index is a capitalization-weighted index of the top 100 non-financial issues (it includes technology, telecom, biotech and wholesale/retail trade) listed on the NASDAQ stock market. The FANG stocks occupy several of the top 10 spots in the index. It should be noted here that some folks include Apple with the FANGs and sometimes refer to them as FAANGs. But for our purposes, Apple will be left out of these comparisons. The NQ futures contract was launched in June of 1999, enjoyed near instant success and now trades over $60 billion each day in notional value. Figure 2 below compares the average daily dollar volumes of the FANG stocks individually and collectively, as well as the QQQ (NASDAQ-100 Tracking Stock) with the NQ futures. The results overwhelming show the amount of money flowing into the futures dwarfs that of the FANG members and the QQQ added together.

Figure 2: Comparing NASDAQ-100 Futures with FANGs and NASDAQ-100 ETF

Source: CME Group Education Team

Given that stocks and ETFs trade in shares and futures trade in contracts, we normalized trade activity by using average daily dollar (or notional amount) value for each issue. While FANG stocks have good activity, as does the QQQ ETF, NQ futures are the clear winner by a substantial margin. Turnover in the NQ is over $63 billion compared with $17.0 billion in the FANGs and $25 billion in the FANGs and the QQQ together. This is testimony to the numerous advantages of trading NQ futures over FANGs and the NASDAQ-100 ETF.

Moreover, E-mini NASDAQ-100 futures enjoy more than just unparalleled activity compared with the competition.  Traders with short-term gains in futures also enjoy tax benefits through the IRS 60/40 rule allowing them to be taxed at a far less onerous rate.

Another key reason why futures trade far more than FANGs and the NASDAQ-100 ETF is because of capital efficiencies. Capital is precious to traders and investors. The less you can use, the better. It is always good to have cash on hand as opportunities arise.

Figure 3: Capital Efficiencies in E-mini NASDAQ-100 Futures versus FANG Stocks

Figure 3 compares the capital required to purchase $36,000 of each FANG stock. Why $36,000? The notional or dollar amount of the E-mini NASDAQ-100 futures is about $144,000. Consideration must be given to the fact that the FANG stocks trade at vastly differing prices hence, we split each stock into $36,000 increments hence, equaling the value of the futures contract. Now, Reg T margin for stocks stipulates that you put down 50% of the transaction amount and borrow the rest at the broker loan rate. Hence $18,000 per FANG stock times four or $72,000 of capital would be required.

By comparison, to purchase one NQ futures contract a performance bond margin of $5,800 is required—substantially less than the $72,000 required to purchase the four FANGs on margin.

Too, with the underlying NASDAQ-100 being a basket of 100 names, the futures provide you with FANGs exposure as well as the 96 other components in the index. This gives you a broader based portfolio in the event of a decline in FANG stocks.

As popular as Facebook, Amazon, Netflix and Google have become, the evidence is overwhelming as to why the NQ futures notional trading volume dwarfs that of the FANGs and the NASDAQ-100 ETF by a substantial margin. And it is because of this critical mass and liquidity that institutional and active retail users prefer the NQ futures over other ways of gaining tech exposure. In addition, it is likely that many investors are using the E-mini NASDAQ-100 futures as a way to hedge a portfolio of stocks containing the various FANG stocks. Given all the advantages of the futures, it is an efficient way to hedge against adverse price movements.

*margin is as of 6/15/18…margins are subject to change at anytime

Regards,
Peter Knight Advisor

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E-mini NASDAQ 100 Product Overview

Discover E-mini NASDAQ 100 Futures & Options

E-mini NASDAQ 100 futures and options, ticker symbol NQ, provide some of the most efficient, cost-effective and liquid methods of gaining exposure to the NASDAQ 100 index.

The NASDAQ 100 index includes 100 of the largest domestic and international non-financial companies listed on NASDAQ, based on market capitalization. Using these futures and options products, you can leverage exposure to major industries, including computer hardware and software, telecommunications, retail trade and biotechnology.

The E-mini NASDAQ 100 product suite allows you to take positions on the performance of the NASDAQ 100 index electronically, in an active and liquid marketplace. NQ futures expire on a quarterly basis on the March quarterly cycle, and trade electronically nearly around the clock.

Additionally, NASDAQ-100 options have numerous expirations, ranging from weekly to quarterly, and provide even more opportunities, allowing flexibility in managing existing option positions, targeted trading based on market movement and the ability to trade high-impact events.

Trading the Product

Quarterly earnings reports of NASDAQ-listed companies have special importance to the NQ market.

Because the NASDAQ-100 is a tech-heavy index, general trends in the technology industry, regulatory changes and earnings of major tech companies may provide trading opportunities in the NQ markets.

If you have questions send me a message or schedule an online review .

Regards,
Peter Knight Advisor

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Trading Global Indices Long or Short

Disclosure of long/short defined risk trading methodology (21:56)

2007 – 2018 Performance for this long/short trading program

Links to track trades

1) S&P 500 Symbol (ES)

1.1)   1983 – 2018 chart
1.2)   10 Year, Monthly Data
1.3)   3 Year, Weekly Data
1.4)   2 Year Chart Weekly Data (ESU18)
1.5)   1 Year, Daily Data (ESU18)
1.6)   3 Month, Daily Data ESU18)
1.7)   15 Day Using 60 Minute (ESU18)

1.8)   Today’s using 5 minute data (ESU18)
1.9)   Today’s Technical Opinion(ESU18)
1.10) Ranges & Price Performance (ESU18)
1.11) Support & Resistance (ESU18)
1.12) Barchart Quotes, All Deliveries
1.13) Barchart Options Quotes
1.14) CME Futures Quotes, All Deliveries
1.15) CME Option Quotes

1.16) Contract Specifications each 1.00 = $50.00
1.17) Exchange Margin Requirement
1.18) S&P 500 Collar Spreadsheet

2) Educational videos and links to get you up to speed

2.1)   Basics of the Futures
2.2)   Basics of Futures Options
2.3)   S&P Educational Videos and Links
2.4)   Introduction to Order Types
2.5)   Detailed Description of Order Types With Examples
2.6)   Understanding Futures Margin Requirements
2.7)   Understanding Moving Averages
2.8)   Understanding Support and Resistance
2.9)   About Bollinger Bands & How to Set Them
2.10) Defining Trend, Trade Duration & Number of Contracts Traded
2.11) Explaining Call Options (Short and Long)
2.12) Explaining Put Options (Short and Long)
2.13) Option Collars
2.14) Working Examples of Collaring Positions and Potential Profit/Loss
2.15) 20 year chart of the S&P Priced in Gold
2.16) Test this strategy on any Bull or Bear market from 1983 to 2018
2.17)
Test this strategy on any of these 17 related and unrelated markets
2.18) Quotes, charts and analysis for all 500 stocks
2.19) SEC filings & information for all 500 stocks

3)_Major/Minor Bull, Bear markets 1983 to 2018

3.1) 1983-2018 chart
3.
2) January 1983 – August 1987 Bull 139.72 – 337.89 =+141.83%
3.3) August 1987 – October 1987 Bear 337.89 – 216.47 =-35.93%
3.4) August 1987 – August 1989 Bear to recovery (2 years)
3.5) August 1987 – July 1990 Bull 216.47 – 369.78 = +70.82%
3.6) July 1990 October 1990 Correction 369.78 – 294.51 =-20.36%
3.7) July 1990 – February 1991 Correction to recovery (7 months)
3.8) October 1990 – July 1998 Bull 294.51 – 1,190.58 =+304.26%
3.9) July 1998 – October 1998 Correction 1,190.58 – 923.52 =-22.43%
3.10) July 1998 – November 1998 Correction to recovery (4 months)
3.11) October 1998 – March 2000 Bull 923.52 – 1,552.87 =+68.15%
3.12) March 2000 October 2002 Bear 1,52.87 – 768.63 =-50.50%
3.13) March 2000 December 2007 Bear to recovery (7 years 9 months)
3.14) October 2002 – October 2007 Bull 768.63 – 1,576.09 =+105.05%
3.15) October 2007 – March 2009 Bear 1,576.09 – 666.79 =-57.68%
3.16) October 2007- April 2013 Bear to recovery (5 years 6 months)
3.17) March 2009 – January 2018 Bull 666.79 – 2,872.87 = +330.87%

Other Indices I trade

4) Euro Stoxx 50 Symbol FX

4.1) 7 Year Chart, Monthly Data
4.2) 3 Year Chart, Weekly Data
4.3) 6 Month Chart, Daily Data
4.4) Today’s Technical Opinion
4.5) Futures Quotes
4.6) Options Quotes
4.7) Contract Specifications3)

5) Dax Index Symbol DY

5.1) 7 Year Chart, Monthly Data
5.2) 3 Year Chart, Weekly Data
5.3) 6 Month Chart, Daily Data
5.4) Today’s Technical Opinion
5.5) Futures Quotes
5.6) Options Quotes
5.7) Contract Specifications

6) Stoxx E600 Banks Symbol FA

6.1) 7 Year Chart, Monthly Data
6.2) 3 Year Chart, Weekly Data
6.3) 6 Month Chart, Daily Data
6.4) Today’s Technical Opinion
6.5) Futures Quotes
6.6) Contract Specifications

7) CAC 40 Symbol MX

7.1) 7 Year Chart, Monthly Data
7.2) 3 Year Chart, Weekly Data
7.3) 6 Month Chart, Daily Data
7.4) Today’s Technical Opinion
7.5) Futures Quotes
7.6) Options Quotes
7.7) Contract Specifications

8) Swiss Market Index Symbol SZ

8.1) 7 Year Chart, Monthly Data
8.2) 3 Year Chart, Weekly Data
8.3) 6 Month Chart, Daily Data
8.4) Today’s Technical Opinion
8.5) Futures Quotes
8.6) Options Quotes
8.7) Contract Specifications

9) Other markets I trade

9.1) Any of the 500 stocks in the S&P with options liquidity
9.2) Any of the top 100 performing stocks
9.3) U.S. Futures markets
9.4) European Futures markets

10) Exchanges I trade on

11) Brokerage firms

12) How to open an account

Schedule a time to review this strategy with me

If you have questions  send a message or contact me.

Regards,
Peter Knight Advisor

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