Gamma Levels on Futures Options

[00:00:00.05] - Speaker 1
Hi everyone. I'm Fabio, CEO and founder of Mentor Q. Today you're about to discover a new exciting product development that we've been working on. We at Mentor Q are thrilled to be the first in the market to introduce gamma levels on futures options. While some platforms offer a proxy for futures using index options, we are providing access to our models by looking at the futures option chain, making the data cleaner and more accurate.

[00:00:22.05] - Speaker 1
This isn't just another tool, it's a game changer for traders who want to leverage market volatility to their advantage. In the next 30 minutes, we are going to discuss why future options are so important and how you can take advantage of them. We are going to introduce you to gamma levels on futures options and show you how some of our customers are using them to be successful. Then we are going to close the webinar with a product demonstration. As a futures trader, the biggest challenge is managing market volatility.

[00:00:46.15] - Speaker 1
Futures carry leverage and we can see significant price swings that can lead to large gains or losses. So risk management is key to be successful. This is where the Mentor queue levels on futures come into play. We are going to show you how to better identify market reaction zones that will increase your precision in identifying trends reversal areas and take profit targets. These reaction zones will not only help you better identify when to take a trade, but also when to stop and better manage your risk.

[00:01:12.15] - Speaker 1
Before we get started, I want to tell you a little bit more about my background. I have over 17 years experience in the financial markets and fintech and I had the opportunity to work closely with the largest banks and asset managers and hedge funds in the world. The bulk of my career was at Bloomberg where I started to understand the importance of data before moving into fintechs that leveraged data for alternative investment strategies. This is why I created Mentor Q. Our company is powered by a team with unmatched expertise and diverse backgrounds.

[00:01:38.26] - Speaker 1
At the core, it's composed of ex investment bankers, researchers, quants, data scientists and developers. This unique blend of experience allows us to build and always improve models in markets that are constantly changing, providing our customers with the support they need to be successful. And this is why we are now so excited about this new product launch. We build quantitative models and data that we provide to our users daily and the goal is to use the same approach used by large institutions, leverage a data driven approach, simplify complex data and create actionable signals that can help us improve our performance and manage our risk more effectively. We now provide our users with quantitative models and data previously exclusive to large institutions.

[00:02:18.18] - Speaker 1
Our goal is to make high level trading strategies accessible and actionable for traders like you. Let's start by introducing what futures options are and why you should learn about them. Options are becoming more important for investors. Even if you don't trade options, you need to be aware of how options can affect the underlying price. In 2001, options volume surpassed equity volumes for the first time.

[00:02:39.29] - Speaker 1
Options are becoming more important and this trend is here to stay. As we can see from this chart, because of the increased volume of options and leverage that comes with it, a trader cannot afford to ignore these flaws. Like before, options volume may become one, if not the key flow that is responsible for certain price action and understanding. It will make you a better risk manager and a more successful trader. Now, let's look at what futures and futures options are and why are they so important for any trader?

[00:03:05.07] - Speaker 1
Futures are financial contracts obligating the buyer to purchase an asset or the seller to sell an asset at a predetermined future date and price. The asset involved can be a physical commodity or a financial instrument. Futures have now expanded to include metals, energy currencies, equity indices, and interest rate products, all of which can be traded electronically. So who uses futures? Futures traders are divided into two main categories.

[00:03:29.14] - Speaker 1
First, we have hedgers who use the futures market to manage price risk. For example, an airline company like Delta Airlines uses futures on oil to protect themselves against price appreciation of the commodity they need to run their operations. Then we have speculators that uses futures to increase their profit by benefit from the leverage that futures provide. Futures markets are important for hedgers to manage their exposure, but they wouldn't function effectively without the involvement of speculators. These participants provide much of the market liquidity, enabling hedgers to effectively enter and exit positions.

[00:04:00.16] - Speaker 1
So speculators range from full time professional traders to individuals who trade sporadically. So what are futures options? Futures options are a type of financial derivative that grants the holder the right, but not the obligation, to buy or sell one future contract at a predetermined price with a specified time frame. These options combine features of future contracts and standard options, and they allow investors and traders to speculate or hedge against future price movement of various assets, including commodities, currencies and financial instruments. Like all options, they come in two calls and puts.

[00:04:33.20] - Speaker 1
Each has a strike price and an expiration date. These options can be exercised anytime before expiration if they are American style or only at expiration if they are European style. Upon exercise, the holder takes a position in the underlying futures contract, which can then be held to maturity Closed out early or allowed to settle. These are similar to index and equity options. The only difference is that in the case of futures options, the underlying is the futures contract.

[00:04:59.12] - Speaker 1
One futures options contract gives us the exposure to one futures contract. So what are the advantages and disadvantages of futures options? First, we have flexibility. Traders can leverage various strategies involving futures options like buying calls, buying puts, writing calls and writing puts, among others. Each strategy has a different market outlook, from bullish to bearish, and even neutral strategies.

[00:05:21.19] - Speaker 1
Then we have leverage similar to futures options. On futures offer the possibility of high returns due to the leverage they provide and then limited risk for buyers. For the buyer of an option, the risk is limited to the premium paid for the option. Unlike futures, where potential losses can be substantial, an option buyer can't lose more than the premium they paid. Now let's break down how futures options work.

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Consider buying a futures contract on crude oil. This contract commits you to purchase a set amount of oil, typically 1,000 barrels at a predetermined price on a future date. Imagine the price per barrel to be around $90. This would give you an exposure per contract of $90,000. If the price moves by one point, your profit or loss will be $1,000.

[00:06:04.00] - Speaker 1
So, as you might imagine, this can be daunting for retail investors due to the significant exposure and potential for substantial losses. Now let's discuss why futures options important and the difference between spot options. First, consider the 24.5trading capability. Futures market operate around the clock for five days a week, facilitated by exchanges such as the Chicago Mercantile Exchange and the Intercontinental Exchange. But what is the advantage of 24.5trading?

[00:06:29.13] - Speaker 1
Global events don't wait for market hours. With 24.5trading, investors can immediately react to international developments and economic news anytime they occur. This flexibility allows traders from different time zones to engage in the market when it suits them best, enhancing liquidity and participation. Consider the impact of key economic indicators like the CPI data, which is released at 8:30am Eastern Time before the market opens at 9:30am on April 10. For example, CPI data crucially influenced market expectations regarding Federal Reserve actions.

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If we look at this chart, we can see that the market drops almost 2% on the news. Futures and futures options allow traders to respond to this information almost immediately, capturing opportunities created by market reaction to such data releases. The same principle applies to after market trading. When a company like Apple or Microsoft releases their earnings, they typically do it after the market is closed. Futures options enable trading on this information before the next day market opening, avoiding the risk associated with the price gaps.

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At the open if a big company has bullish earnings releases, the index future typically tends to move very fast. Microsoft, Google, Apple and Tesla account for about 18% of the S&P 500 and about 25% of the NASDAQ. So a strong move in the price of these companies will move the market. And with futures options, you can capitalize on this. So what futures are we going to cover during this product release?

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We will provide futures levels on the following tickets going forward. As you can see, now you can leverage futures options on index futures like yes and Q and Russell commodities like oil and natural gas metals like gold, silver, platinum and copper soft commodities as well as rates and forex.