Put Options
There are two different types of options contracts: call options and put options. Each is an investment strategy that reflects a vastly different approach. A call option gives its purchaser the right, but not the obligation, to buy a specific futures contract at a predetermined price within a limited period of time. A put option gives its purchaser the right, but not the obligation, to sell a specific asset in a commodity trade, at a predetermined price and within a limited period of time.

Options are very different from futures trading; futures contracts require the buy or seller to complete the transaction outlined in the futures contract according to the parameters of the agreement. Options contracts merely provide their buyers with the right to buy or sell a commodity according to the agreement made. Another feature of options is that the purchaser of a call or put option cannot lose more money than the premium that he or she initially invested and is not susceptible to margin calls because call and put options are not purchased on margin.

Contract Conditions
Both call options and put options are considered wasting assets, or are said to have “time decay.” This means that because they are contractual agreements, they only have a limited lifespan. Whether it is weeks, months or years, there is an expiration date and the contract is over by that date. Time decay can affect the premium, the cost of purchasing a contract, because the closer to the expiration date a contract is written, the less likely it is that you will meet your conditions. In options trading as with anything else, time is money.

Another contract condition that is consistent for both call and put options is the parties involved. By its nature, an options contract will always have both a buyer and a seller. Additionally a buyer of a call or put option does not need to post a margin because the most he or she can lose is the price of the premium. The seller of an option, on the other hand, will generally be required to post one based on the contract’s option value.

Reasons For Put Options
One of the most conservative options trading strategies is to help protect assets against adverse price fluctuations. If you are concerned that market trends are moving against your investments, you can use put options as a kind of hedge fund to safely minimize your losses. If your commodities trading starts going against you and prices decline, your put options will increase in value, helping to offset other losses. If your holdings rise instead of falling, you will only lose your premium on the puts, since you can allow them to expire without moving on them.

Conclusion
Trading put options can be a very strong part of a successful trading plan. Because a good trading plan will include means for protecting your wealth as well as increasing it, buying puts can become part of a valuable defensive investing strategy. Put options are a great way to safely increase your wealth and offset any losses you might incur due to the fact that they are increasing while your original investments are decreasing.

Market Direction:

The benefits of Candlestick analysis is the identification of probabilities. The Candlestick Forum provides a continuous training process for teaching investors how to recognize the signals occurring in the correct conditions. That information can be utilized in any trading market. Investor sentiment reactions are reoccurring in any trading entity or any trading market. 

This morning, our recommendation was to buy August Lean Hog's on a positive open. That recommendation came from the simple evaluation of what the candlestick signals were revealing. The stochastics were in the oversold condition. Prices gap down and formed a Doji recently. This should indicate to the candlestick investor that the prices were in the exuberantly sold condition: Start watching for candlestick buy signals. After a few days of choppy trading, a Morning Star signal appeared. That in itself was evidence that the Bulls were still trying to take control at these levels. The fact that the price closed above another important indicator, the T-line, was more evidence that the uptrend might be in progress the next day. Prices consolidated back down to the tee line but closed positive, confirming the Morning Star signal. Additional buying after that would be a clear indication the trend has reversed.

Lean Hogs

As seen in the Lean Hog chart, the bullish sentiment created a gap up after obvious buy signals. It closed up the limit for the day. Do all price moves produce big profits? Not necessarily, however having the ability to identify the potential reversal of a trend produces beneficial probabilities. First, it puts investment funds into positions that should be moving in the correct direction. Secondly, it puts investors into positions that not only have the correct direction but also in positions that have the opportunity to create huge profits. Candlestick signals identify high probability trades. They do not all work, but the percentages of being in the right trade at the right time are dramatically improved using candlestick analysis. When a trade does not work, the candlestick signals provide an easy-to-implement format for coming out of losing trades quickly, reducing losses.

Whether trading commodities, which have high leverage and high volatility trading aspects, or investing in equity portfolios, very logical and sensible trading programs can be implemented with candlestick signals. If an investor is more oriented toward fundamental analysis, candlestick signals can still be a tremendous advantage for timing longer-term positions more successfully.

The market trend, especially in the Dow, could easily be evaluated knowing what the candlestick formations were revealing. The sideways movement of the Dow produced obvious support and resistance levels. The moving averages, in which the Candlestick Forum trading groups utilize, also provide valuable trend analysis information. The Dow pulled back on Tuesday, producing the possibility of a downtrend that might test the lower trend channel. However, witnessing a bullish candle right on the 20 day moving average and closing above the tee line greatly diminished the downside perspective.

Dow

The huge upside trading day today clearly revealed that the upper trend resistance level was not in effect anymore. This could now be the start of wave three of a 1-2-3 wave pattern. Keep in mind, the Japanese Rice traders say to let the market tell you what the market is doing. A break out through an obvious resistance level should tell us that a new bullish dynamic has come into the market.

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Good investing,

The Candlestick Forum Team

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