it comes to trading, planning ahead makes all the difference.
Knowing the most important dates of the trading calendar
can save you a lot of headaches, and a little research
goes a long way in setting up your trading plan and
successfully managing your expectations.
of the most important dates in the trading calendar
are first notice day and last trading day. First notice
day is the first date that users will get notified that
they have been assigned a delivery. Because most traders
don’t want to hold the physical product, it’s important
to know when the first notice day is so you don’t get
stuck in a position. Otherwise, on first notice day
“you can continue to trade the contract, but if you
hold the futures, you may be forced to take delivery
of the underlying product,” explains Pat Shaughnessy,
principal at Zen-Fire, adding, “Anyone who is stuck
in a position that needs to get out will pay a premium
to reach for the wider than normal bid or offer.”
Wilkinson, senior market analyst at Interactive Brokers,
says most speculators ought to avoid dabbling in contracts
notes that the majority of the volume usually moves
away from a contract on the first notice day, and traders
do not want to take delivery in most cases so they will
begin to trade the next active month. When speculators
roll, selling the front month of the contract and buying
the next month out, it can depress the front month and
pump up the next month, thereby widening the spread
between the front month and the next contract out. “When
volume moves to another month, traders with positions
in the deliverable month can find themselves dealing
with extremely wide bid/ask spreads and unusual movement
due to liquidation of positions before delivery can
occur,” Shaughnessy says.
Hackett, president of Hackett Financial Advisors, says
“If a speculator waits too long to get to first notice,
you could see an underperforming front month contract
in relation to a deferred contract. I want to be out
within 30 or 35 days before first notice so I don’t
get caught in the performance roll that happens in that
last 30 days.”
trader William Purpura adds, “There is always quite
a bit of spread trading in the week prior to first notice
day in the major delivery months.”
also need to be aware of the last trading day for each
contract. “Last trading day can either be very calm
or very volatile as the number of contracts outstanding
is usually very low and trading volume is very thin.
This can lead to wild price swings if holders of long
or short positions do not wish to or cannot make or
take delivery. In most cases, the last trading day has
little activity as most traders are already out of that
particular contract,” says Mike Zarembski, senior commodity
analyst at optionsXpress.
first notice day affects trading more than the last
trading day because of the spread activity, Purpura
notice days and last trading days for each contract
are listed in Futures Dateline section (see Dateline).
“Be familiar with your vendor’s product specifications.
Be able to locate your broker’s product specifications
on their Web site or platform and pay particular attention
not only to the current month’s volume, but also to
the next month’s volume to give you a heads up so you
don’t get caught short or long,” Wilkinson says.
options, it’s also important to keep expiration dates
in mind. On an expiration date, the option and the right
to exercise it cease to exist. On expiration day, a
trader holding in-the-money options or options just
out of the money can choose to take from several scenarios.
For example, Zarembski says that if a trader is holding
a deep in the money option (either a call or put), the
trader needs to decide if he wishes to have the futures
position in his account after expiration or if he wishes
to offset the option position before expiration. “He
could also buy or sell a futures contract (depending
on his option position) against his option position
and after expiration. The new futures position will
offset with his current futures position,” he says.
a trader is holding a well out-of- the-money option
position, “normally the trader will do nothing and let
the option expire worthless. However, some more conservative
traders who are holding a short options position may
try to buy back the options at a nominal price,” Zarembski
says option expiration days will sometimes result in
increased volume and volatility during the last hour
of open outcry.
exchange Web sites for expiration days. Wilkinson says
it’s important to know your broker’s procedure on exercising
in the money options, whether you are responsible for
exercising them or whether your broker will do it for
you. That information also should be available on your
broker’s Web site.
reports are some of the biggest market movers for futures
and options. The employment situation report, released
by the Bureau of Labor Statistics, includes the number
of people unemployed as a percentage of the labor force,
nonfarm payroll figures and figures on the average work
week. It is released the first Friday of each month
and can lead to wild market swings if there are any
Domestic Product (GDP), the broadest measure of economic
activity, is released quarterly by the Bureau of Economic
Analysis and also can move the market. Traders also
should keep an eye on the Consumer Price Index (CPI)
and the Producer Price Index (PPI), both released monthly
by the Bureau of Labor Statistics.
in the CPI represent the rate of inflation and help
the Fed formulate its fiscal policy, while PPI measures
the average change over time in the selling prices received
by domestic producers for their output. Statements from
Fed interest rate decisions and Fed testimony provide
some of the best clues about Fed policy.
should know what is expected in the main report and
watch for revisions since the market can react to revisions
as well as the report itself. Anyone day-trading or
trading from a shorter-term perspective should be flat
with no open orders going into employment, GDP, CPI
there may be a temptation to trade before a report —
especially if you think that you may have some inside
information — often the market reacts in a whipsaw fashion
following these reports. Unless you have a lot of room
for error, the market will fill your order and stop
loss (in either direction) before settling on a direction
(see “Widowmaker”). If you are a retail trader you probably
aren’t executing on the fastest trading platforms. Proprietary
trading desks pay millions of dollars to get a few hundredths
of seconds advantage for situations like these.
should expect extreme moves and longer fill times when
trading on economic releases,” Shaughnessy says. “There
will be large gaps where stops may not be filled and
market orders may be filled at extreme prices. If speculating
on a directional move, traders should have their orders
in well before the scheduled release and be prepared
for no fill or fills at the extremes. In most cases,
it is usually best to wait for a brief period of time
before trading after a release.”
says traders also should watch the weekly Commitment
of Traders (COT) reports released by the Commodity Futures
Trading Commission. The COT reports show changes in
open interest from the professional or trade perspective
and the retail perspective, and he says some people
use them as a contrarian indicator.
recommends looking at weekly export numbers for early
trends in exports. “If you see the four-week moving
average starting to rise, that’s an early warning sign
that demand’s picking up. If the four-week moving average
[starts] moving up, we’re starting to see the physical
desire to buy grains improve and physical demand always
leads price,” he says.
are split about the effect of economic reports in the
midst of current volatile market conditions. Hackett
says that economic reports mean more than they used
to in today’s commodities markets. “Right now, we’re
in a synchronous market. Stocks and commodities are
moving in unison, which is very unusual. Normally those
macro economic reports don’t mean much to the grain
markets, but in this environment they mean a great deal,”
the other hand, Purpura thinks current market conditions
are taking the emphasis off economic reports. “There
are often knee-jerk reactions to these, but with the
volatility we have seen of late and the emphasis on
the credit crisis, these reports have less effect now
than they have in times past,” he says.
the current crisis all attention was placed on the pronouncements
of the Fed and Treasury. With the government pouring
hundreds of trillions of dollars into various institutions
based on this crisis, a report that shows lagging conditions
will not hold the same weight as it would ordinarily.
says the importance of the various releases changes
as the economy changes. “What used to be a bearish report
may become a bullish report in different economic times.
Interpreting what numbers may move the market and how
they may move the market is more difficult today than
in the recent past. There is no simple answer on how
to interpret the various economic releases and how to
trade them. In a word, ‘carefully’ would be my advice,”
way, the market acts based on the report vs. expectations.
It is important to keep your ear to the ground in order
to determine what market participants have already worked
into the price.
say that risk tolerance plays a part in how options
traders prepare for economic releases. “Some traders
with a low risk tolerance will close out some or all
of their positions or not initiate any positions before
an important announcement. Others will take a position
with hopes that a favorable move will occur after the
announcement is released,” Zarembski says.
commodities traders, crop summary, planting intensions
reports and cotton and livestock reports by the U.S.
Department of Agriculture (USDA), can have an impact.
Hackett says the degree of that impact usually depends
on whether or not the report meets or exceeds expectations.
“Many times, expectation is already built in and if
the number comes in at or below what the conventional
wisdom was, there could be a serious countermove from
what was going on prior to the report,” he says. Traders
should be mindful of what the market is anticipating.
“Try to figure out where expectations lie in these markets
as best you can,” Hackett says. Two of the most-watched
USDA reports are the late June acreage survey and the
December reports on corn and soybeans.
to Zarembski, some grain option traders try to sell
options a day or two ahead of a major USDA report, expecting
many traders to buy options before the USDA report is
released hoping for a large move, which he says can
“inflate the price of options before the report and
many times option prices will fall for both puts and
calls if the USDA report is not overly bullish or bearish.”
it comes to the trading calendar, knowledge is power.
Check the exchange Web sites and Futures Dateline for
first notice and last trading days. Get up-to-date expectations
prior to each economic report. Expectations will change
up until the report is released, so don’t rely on dated
sources. If you know what’s expected, you’ll be better
prepared to trade.