In This Issue

Trade Futures, Forex, & E-Micro in One Platform

Futures Options 101

Economic Reports and Expiration Notices

July 22nd, 2009 - Issue #490

New! Trade Futures, Forex, & E-Micro in One Platform

We are pleased to announce the relaunch of our companion site, Foreign Currencies by Cannon.

What's new about Foreign Currencies? Now, in one piece of trading software, E-Futures International™, you are able to trade futures, forex, and e-micro fx futures all at once!

New to E-Micro FX Futures?

E-Micro FX Futures are 1/10th of the size of standard Forex futures and therefore have 1/10th the risk exposure. There are currently six currency pairs you can trade: EUR/USD, USD/JPY, GBP/USD, USD/CAD, AUD/USD, and USD/CHF. Learn more about the e-micro fx futures market here.

Forex Only?

If you want to trade forex only, you have the choice of another trading platform, GFT DealBook 360, that trades forex exclusively.

Click the image below to visit the all-new Foreign Currencies by Cannon. Or, click here to test drive a free E-Futures International™ demo, and see what it is like to access these three markets all in one platform.

Futures Options 101

Futures Options Writing

Have you ever wondered who sells the futures options that most people buy? These people are known as the option writers/sellers. Their sole objective is to collect the premium paid by the option buyer. Option writing can also be used for hedging purposes and reducing risk. An option writer has the exact opposite to gain as the option buyer. The writer has unlimited risk and a limited profit potential, which is the premium of the option minus commissions. When writing naked futures options your risk is unlimited, without the use of stops. This is why we recommend exiting positions once a market trades through an area you perceived as strong support or resistance. So why would anyone want to write an option? Here are a few reasons:

1. Most futures options expire worthless and out of the money. Therefore, the option writer is collecting the premium the option buyer paid.
2. There are three ways to win as an option writer. A market can go in the direction you thought, it can trade sideways and in a channel, or it can even go slowly against you but not through your strike price. The advantage is time decay.
3. The writer believes the futures contract will not reach a certain strike price by the expiration date of the option. This is known as naked option selling.
4. To hedge against a futures position. For example: someone who goes long cocoa at 850 can write a 900 strike price call option with about one month of time until option expiration. This allows you to collect the premium of the call option if cocoa settles below 900, based on option expiration. It also allows you to make a profit on the actual futures contract between 851 and 900. This strategy also lowers your margin on the trade and should cocoa continue lower to 800, you at least collect some premium on the option you wrote. Risk lies if cocoa continues to decline because you only collect a certain amount of premium and the futures contract has unlimited risk the lower it goes.

Cannon Trading Co. Inc. believes in writing futures options, but advises against doing it without the advice and expertise of a knowledgeable broker or specialist. Be strict when choosing futures options to write and don't believe in writing futures options as your only strategy. Using the same strategy every month on a single market is bound to burn you one month, because you end up writing futures options when you shouldn't. Cannon Trading Co. Inc. believes you should treat option writing just like futures trading. We believe you should stay with the major trend when writing futures options, with rare exceptions. Use market pullbacks to support or resistance as opportunities to enter with the trend, by writing futures options which best fit into your objectives.

Volatility is another important factor when determining which futures options to write, it's generally better to sell over valued futures options then under valued futures options. Remember not to get caught up with only volatility, because futures options with high volatility could always get higher. The bottom line is, pick the general market direction to become successful over the long-term. We also believe in using stops based on futures settlements, not based on the value of the option. If a market settles above or below an area you believed it shouldn't and the trend appears to have reversed based on the charts, it's probably a good time to exit your positions. We can help you understand the risks and rewards involved, as well as how to react to certain situations, i.e.,: if/then trading scenarios. We can either assist your option writing style or recommend trades and strategies we believe are appropriate, using the above guidelines.

Continued...

Read the rest of the "Futures Options 101" for free. Enter your name, email, and phone number to continue.

Name

Phone number

Email address

---

Cannon Trading respects your privacy and will never give this information to a 3rd party.

Economic Reports and Expiration Notices

Source: Moore Research Center, Inc.

* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.

** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.

*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!