A Recent Sugar Trade...

You can read the episode transcript below or watch the video that follows.
If you have any questions, please reach out to us. We look forward to being a continued part of your trading education!

Today in Trader Tip Tuesday, I'm going to take you through a recent trade that we did in sugar.
This trade in sugar I'm going to take you through is a fantastic example of a culmination of all the concepts and all the principles that we teach coming together into one trade, where you'll be able to see as we go through, bar by bar, day by day, week by week, what I'm thinking and why we manage the trade this way. For many of you, this is going to open your eyes to what is possible, because what we teach is a very different way of managing trades, it's a very different psychological mindset than you will see anywhere else, so with that we'll get started.

This trade that we did in sugar, it started off as an intraday trade. We call it ID one, Id one stands for intraday one is the first timeframe below daily. This started off as an intraday trade that we identified, that was backed up by a strong daily pattern. We like to set up trades that combine multiple timeframe analysis. In this case, we're going to have an intraday support that's lined up with a daily support and we're looking to go long at 21.83 with a 10 cent stop at 21.73. This is on Friday, March 31. So I'm gonna hit play here, and you're gonna see the trade start to unfold and you can see the market comes down, we're filled. We're now long, and you can see the market then takes off coming into the end of the day. We appeal 20% of the position that we bought intraday at intraday resistance. So we bought it intraday support, we peeled it intraday resistance, we took off 20% of the position, then we let the rest of the position run. Now, as we're running into the end of the day, it's a Friday. One important concept here is that with intraday trades, you have to be very careful, you can't really take intraday trades over a weekend. The great thing about intradays, we're able to go into sugar with a 10 cent risk, but going into the weekend, I have no idea where sugar is going to be on Monday, it could get 4050 cents against me, I have no idea. So we're not willing to continue to assume that kind of risk. What we do at the end of the day is we take our intraday risk, which the trade is working very well, and we roll it up to the daily timeframe. This means that we're no longer going to manage off or intraday, we're going to manage off the daily and it's a weekend but I'm okay taking a daily risk over the weekend.

Now, to further protect ourselves, what we're going to do is we're actually going to buy at the money puts. We're going to buy 22.25 puts, which would give us the right to sell sugar at 22.25. You can see right here, sugar straight in 22.26. So this means that at this point, I don't need to stop anymore. Because I have the right to sell sugar at 22.25 whenever I want. I'm protected, so my stop is gone. One of our key beliefs is that stops kill performance. So we use stops, but we're very selective and targeted about when we use them and how we use them. In general, we try and get rid of them. In this case, we get rid of it by buying the 22.25 put. Now we're going to go into the weekend, long futures and long 1 22.25 put for every future we're long. This is what's known to be a long synthetic call. So we now have the risk profile being long a call, but we legged into it for a big edge, making it virtually impossible for us to lose money on this trade. Let's finish out the day and see. Okay, so we come into Monday we're long, we're heads with the right to get out at 22.25, we're going to let the trade work. So that's what we do and we're going to see the trade unfold here through Monday.

One of the things you notice when you actually see the market trades, you're gonna see breeze, it doesn't just go up. This is one of the things in trading, everybody wants trays to just go up. It's not realistic. The market is going to oscillate. It's going to rally, it's going to come back. This is what's happening, but our framework is telling us that we're good to be long. We have no sweat about being long. So now we're into Thursday, and you can see the markets continuing to rally. Now Thursday's significant. You don't see it on this chart, but one thing that's happening on Thursday that's very significant is that we're breaking through monthly resistance. So we're long the daily. The weekly now is moving higher and we're breaking out on the monthly. What this is actually going to allow us to do is it's going to allow us to roll our trade again, remember, we entered on an intraday timeframe then we rolled it to daily. Now because we're breaking out on the monthly, we're going to be able to roll it to the weekly and let the monthly move protect us. Now we're timeframe rolling this out to the monthly timeframe. Here we are finishing out the week finishing very strong. It's been a big up week.

On this day, we roll up our 22.25 puts to 23.50. So we're going to buy the 23.50 put and sell out the 22.25 put that we were long. Don't need that one anymore, so we roll it up. What we've done here is we've further protected ourselves, we now have the right to sell at 23.50, which is where we're at. If we break, again we don't need to stop, we're all set and if we rally, we still have the chance for unlimited upside. We roll up our puts to 23 and a half and we've rolled the trade to the weekly timeframe. At this point, we're going to switch charts because we're not trading the daily anymore, we're trading the weekly. So we're going to switch charts and we're going to go out to the weekly timeframe. Here's our weekly timeframe. You can see this when we just looked at the Daily rallied all week, the weekly rallied. We're about to finish the week, now we're going to watch for the next week.

Now we're into the next week. One of the things we're seeing here is the market is starting to get overbought. Because of this, we decide to hedge the position by selling a near dated call spread. We sell the 24 and a quarter - 25 and a quarter call spread. We're selling this call spread because we're going to collect premium, which is going to help offset the cost of our put. We still maintain an unlimited upside, because the call spread has a limited loss. While our position, which is long futures and long puts, it's a long synthetic call, has unlimited upside. We have a position that has long, unlimited upside, and has limited loss on the hedge. We keep going up, the hedge will max out and the market can keep going, but we're collecting extra premium that helps pay for our puts and sets us up in a position that we actually continue to make money. If we rally, we actually make a little bit of money if we sit and if we break we're out. We're out at 23.50. Right here on April 10. We sell this call spread. We sell the 24 and a quarter - 25 and a quarter call spread. Now we'll let it continue to go again. On the 11th, right in here when we got up in here, in addition to selling the call spread, the other thing we did is we took our 23.50 puts and we rolled them out. We were long 23.50 puts, we rolled them out a month, which gave us more protection, more coverage. Now we're short a short dated call spread and long a further dated put. Now we're collecting theta while we're sitting, we could still make unlimited upside if we rally and we're out at 23.50 if we break.

The thing I want you to notice through this as we're going through this position, we're always in a position of strength. If the market has a sharp correction, we don't care. We don't need to stop. Don't have to overanalyze. Everything is being taken care of for us as we go. Now we've come to the end of the week. We've come to the end of the week and our 24 and a quarter 25 and a quarter call spread is expired, worthless, worthless. So we collect the full premium that we collected when we sold this call spread. We collected 14 cents. We sold them one to one for every future we were long we sold one call spread. This up to offset the price of our put, which the put we were long we'd paid 46 cents for. This helped to offset the price of our put, it's gone out worthless. Now our upside hedges are gone, we're still long at 23.50 put and now what we're going to do is we're actually going to sell the 24 and a half - 26 and a half call spread. We're going to sell basically just above the money and we're going to buy a call spread above. We do this on Monday the 17th. We've got a call spread above hedging us, we're long puts below. In this trade, we're good. If we break, we're out and if we rally, we're gonna make more money.

Now we're coming to the end of the week, we've come to the end of the week and now everything is good. Nothing in our method has told us to change anything, we're still letting the trade just run. You can see sugar takes off again and now it's both here and here, it hit what we call a breakout target. This is a target where the market has essentially gone too far too fast. When we hit these, we like to hedge. At this point, we're actually going to roll up our 23 and a half puts, we're going to buy the 25 put, sell out the 23 and a half put we're long and we're rolling up our exit from 23 and a half to 25. So we're short, a 24 and a half 26 and a half call spread and we're long at 25 put. Now, the call spread we're already through both strikes, that has a max loss. Now we're through 26 and a half, so now we're back to fully long. We're hedging this fully long with being long a put and if we break we can still make money in the call spread. This is the 25th and the 26th. In here, we roll up our put from 25 to 26 and a half because we're in a break out target, we're concerned that we could sell back off so we're rolling this up so we know we're out at 26 and a half. So we're long at 26 and a half put, we're long at 26 and a half call, we're short a 24 and a half call and we're long futures. This is our position. Okay, so we bought the 26 and a half puts sold out to 25 put we're long and now we have this on. I did miss one thing right here on April 12. When we hit this breakout target, we actually sold futures here and bought the futures back in here, so we have what's called a gamma scalp. We sold futures out, we bought them back. It was a nice 69 Tick scalp we sold 24.79s, bought 24.10s. Now we're long at 26 and a half put, we totally have everything covered and let's keep going.

We're gonna go into May 3. Right here, we actually buy more futures. We're able to do this because we're long 26 and a half puts, so we buy futures against the 26 and a half puts, helping us to get longer on a pullback. The market is short term oversold and here when we buy these futures. You can see the market starts coming back. Now we sell these out, sell the futures that we bought and let it go through. This is now on the end of the week and at the end of the week, we basically flatten up the position. We buy a 24 and a half put, by buying the 24 and a half put, it neutralizes the short 24 and a half call that we were short, creating a short synthetic future. To have a short synthetic future against long a future that left us essentially with a 26 and a half straddle. We basically traded out of this, putting ourselves in a conversion reversal. So the position now has no risk on, its neutral. We're essentially out at 26.44. We've neutralized the position, we've taken everything off. What started off as a 10 Tick risk ends up being over a 21 R winner. It's awesome. Never 21 are winner, there's no doubt about that. Most of you have never had it 21 R winner. So that part is super cool, but I was really lost and this is something that's actually much more important than a 21 R winner, which is a lot of times to get a 21 R winner, you got to take a lot of risk, a lot of open risk. This is why people don't get them, they get too nervous about all open risk.

What I want you to see in this example is that because we kept owning these at the money puts, we never needed to stop. We never had to worry, if the market corrected, it was no big deal and so as a result, we actually had very little open risk on our way to making 21 R. Most people cannot say that. Let's look at the different things we did here, we did a timeframe roll, we bought an ID one, rolled it to daily, rolled it to weekly. We quickly hedged it with options to get rid of the stop and we never needed to stop again. We sold upside call spreads to collect premium to help pay for the put that we purchased, so we didn't need to stop. We still call spreads, not calls. By selling call spreads, it allowed us to preserve unlimited profit potential if the market continued to rally. We saw one spread we sold that went out worthless and we were able to sell another one to replace it and in that spread, the mark actually ran through both strikes, making us fully long as it ran through both strikes.

So many cool things in here and one of the things you could see is what backed all this up is what we call the method. This is a technical framework that I built that really looks at understanding value and how to trade around value. We got long in value and then we essentially hedged anytime we got too far away from value at these breakout targets. Now we could reinstate, which we did here where we came back to value and allowed us to do what pro traders do, which is a trade around the position. When the profits start to take off, and so is the risk, they sell some off. Then when it comes back in that allows them to buy some back. They're always in a position that they can respond by their own choice, never forced to do anything and that's what we really did in the sugar trade.

A lot of things I said in this video are probably somewhat advanced for you. That's okay. I would actually encourage you to go back and watch this again. There's some phenomenal tidbits in here that can really help you take your trading to another level. That's what Trader Tip Tuesday's for, is helping you take your performance to elite level.

These are the type of concepts we're going to teach in the 300 summit. We're gonna go through method level three, and method level three, we're going to talk about some of these patterns that we've seen. We're going to talk about rolling timeframes and how do you know when to roll and talk about how do you think about stops and then we're going to come into options 301. In options 301. we're going to learn how to get rid of stops. We're going to learn to always have our risk hedged off so we don't need stops. Then we're going to build on using advanced strategies. Knowing when to use a call spread versus buy the put. Understanding how to roll these, understanding diagonal calendar spreads, understanding when volatility has gotten too high and it's going to pull back or when volatility is contracted and has reset itself.

These are things that we're going to teach in the 300 summit. It's going to be a professional summit unlike anything you have ever seen. You will never go anywhere and be taught these techniques and this level of detail. The kind of thing that allows you to be set up as a lead hedge fund manager would trade or an elite prop trader would trade. I know this because I have taught them and I have worked with them. I know what they do, and they do not do this. Very few of them do this. You have the chance to do it. We get to do it in person in Chicago. I look forward to teaching these with you and helping you take your trading to a level that you never thought possible. Make sure you sign up now. Looking forward to seeing you!


Initial $ Risk $268.80
Total Profit $5,196.80
Total R $19.33

Initial $ Risk $616.00
Total Profit $11,312.00
Total R $18.36

Initial $ Risk $884.80
Total Profit $16,508.80
Total R $18.66

Sign Up to Stay Up to Date on Trading Matrix Tips...
Straight To Your Inbox 

If you've not already done so, sign up below to receive emails when we release new Trade Talks, Trader Tip Tuesday episodes, new classes + services, latest events, and more.

Share this with others: