July 17th, 2019

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July 17th, 2019

FUTURESINSIGHTS

The self-directed trader has gained access to futures markets that was reserved for institutions until recent years,

but the cloud of complexity surrounding the products still looms. Frank, Katie, and I have put together a monthly

newsletter that lifts the “futures” fog from trading futures markets.

Futures offer a fast, cost-effective way to trade financial and commodity markets. While they simply move up and

down like any stock or ETF market, they are standardized contracts to buy or sell an asset at a set price, on a set

date in the future, and in a predefined quantity and quality. The commentary, strategies, and foundations found

here will help traders get the most out of futures, whether they are hedging a portfolio or looking to capitalize on

price swings in the markets.

Futures Insights Contributors:

Pete Mulmat

Frank Kaberna

Katie McGarrigle

Futures and futures options trading is speculative and is not suitable for all investors. Please read the Risk Disclosure for Futures and Options prior to trading futures products.

Watch Pete on Splash into Futures at 12:00p CT, only on tastytrade.com

July 17th, 2019

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FUTURES INSIGHTSEDITORIAL VIEWS

MOTION IN THE MARKETS

Futures Market Change in Trading Range

/ES -26%

/GC +21%

/ZB 0%

/6E -7%

/6B -3%

/ZC +16%

The Break in VolatilityContributor: Pete Mulmat

Volatility moves randomly about some mean value, and this is true for everyfutures market. That is, if a market is moving historically slow, then it will atsome point revert to greater movement; vice versa goes for periods of highvolatility. The timing of this reversion and short-term changes in volatilityare the random parts. However, there is a trend within this randomness: thevolatilities of various markets tend to move together. Implied volatility ininterest rates, gold, Euros, and crude oil all have a positive correlation tothat of the stock market ranging from +0.25 to +0.50.

With gold movement up 21% and that of stocks down 26%, a convergencebetween the two seems imminent. Selling options in /GC coupled with longoptions in /ES is the most traditional route to trading this convergence,though bullish strategies in stock volatility markets such as VIX and VXX areviable replacements for the latter.

S&P $3,000: Significant or Arbitrary?Contributor: Frank Kaberna

Since the S&P, Dow, and Nasdaq are all sitting at historically high prices and historically low volatilities, opportunity lookssparse. The monthly movement in these three outrights is down between 3% and 11% from just last month, via Motion inthe Markets. However, the movement in the pairs markets has actually increased. Of the permutations, the Dow-Nasdaqpair is at the greatest extreme with a divergence of 8.5% (Nasdaq over Dow) this year so far. These two indices have settledthe year within 6% of each other 68% of the time going back to 2010, and the largest annual divergence in that time was9%. Potential convergence between the Dow and Nasdaq is some of the only opportunity available in a stock marketstruggling to make significant news.

As the S&P 500 surpassed $3,000 for the first time in itsexistence, the news was labeled “breaking.” While this wasindeed a new high value for the stock market, and a round,clean value at that, the fact that it was $3,000 warrantslittle special treatment. The S&P 500 is priced using aproprietary calculation that renders the exact value of theindex at any point in time arbitrary. Traders constantlymonitor the fluctuations in this price to establish whetherthe market is expensive or cheap relative to past prices,but the number itself is irrelevant. Pair this informationwith a statistic stating the S&P 500 has made new highs14% of days going back to the start of 2017, and this recentevent is hardly news at all.

July 17th, 2019

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FUTURES INSIGHTSEDITORIAL VIEWS

On the Radar: Equities

As they gather their thoughts and wait for the caffeine to kick in, most traders look to see what /ES is doing. However, that’sonly one of the four major equity indices -- S&P, Nasdaq, Dow, and the Russell -- that provide opportunities for outrightspeculation as well as comparative assumptions between them. Correlations in these products are generally high andpositive, but relative strength and weakness change all the time based on earnings announcements, news impacting acertain stock sector, and more! These two characteristics dovetail to form potential opportunity in the way of pairs trades.Furthermore, the new micro contracts on these indices allow traders to scale into directional ideas in a more bite-sizedfashion. Check out their specs below!

Contributor: Katie McGarrigle

SYMBOL

CONTRACT SIZE

DELTA

MINIMUM TICK

$ VALUE OF 1 TICK

TRADING HOURS

OPTIONS?

DELTA ATM OPTIONS

DELTA 1 SD OPTIONS

CORRESPONDING ETF

/ES

E Mini S&P 500

50 X INDEX

50

$0.25

$12.50

YES

25

8

SPY

● Non-Farm Payroll/Unemployment ● FOMC Rate Announcements ● FOMC Press Conference

Known Binary Events:

NOTES

Common Setups:

EXPIRATION

NASDAQ DOW JONES RUSSELL 2000

QUARTERLY - MARCH, JUNE, SEPTEMBER, DECEMBER

Sunday – Friday from 5:00p - 3:15p CT --15 mi. pause-- 3:30p-4:00p CTReopens @ 5:00p CT

/NQ

20 X INDEX

20

$0.25

$5

YES

10

3.2

QQQ

/YM

5 X INDEX

5

$1.00

$5

NO

2.5

0.8

DIA

/RTY

50 X INDEX

50

$0.10

$5

YES

25

8

IWM

● Outrights● Futures Options Strategies

● US GDP ● US Retail Sales● Earnings Announcements

● Pairs /ES - /NQ● Pairs /ES - /YM

July 17th, 2019

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MOTION IN THE MARKETS

EQUITIES

+/- 20.00+/- 37.00+/- 95.00

+/- 1000+/- 1850+/- 4750

+/- 13 +/- 23 +/- 60

0-95.00 -37.00 -20.00 +20.00 +37.00 +95.00

0-66.0 -26.0 -15.0 +15.0 +26.0 +66.0

+/- 72.00+/- 131.00+/- 361.00

+/- 1440+/- 2620+/- 7220

+/- 15.0+/- 26.0+/- 66.0

+/- 750+/- 1300+/- 3300

0-361.00 -131.00 -72.00 +72.00 +131.00 +361.00

0-906.00 -346.00 -181.00 +181.00 +346.00 +906.00

+/- 181.00+/- 346.00+/- 906.00

+/- 905+/- 1730+/- 4530

+/- 7 +/- 13 +/- 27

July 17th, 2019

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INTEREST RATES

+/- 0’06+/- 0’12+/- 0’26

+/- 187.5+/- 375+/- 812.5

+/- 0’04 +/- 0’075 +/- 0’14

0-0’26 -0’12 -0’06 +0’06 +0’12 +0’26

0-4’02 -1’26 -0’31 +0’31 +1’26 +4’02

+/- 0’10+/- 0’18+/- 1’11

+/- 312.5+/- 562.5+/- 1343.75

+/- 0’31+/- 1’26+/- 4’02

+/- 968.75+/- 1812.5+/- 4062.5

0-1’11 -0’18 -0’10 +0’10 +0’18 +1’11

0-2’19 -1’05 -0’20 +0’20 +1’05 +2’19

+/- 0’20+/- 1’05+/- 2’19

+/- 625+/- 1156.25+/- 2593.75

+/- 0’07 +/- 0’12 +/- 0’15

+/- 0’01 +/- 0’025 +/- 0’03

+/- 0’027+/- 0’056+/- 0’13

+/- 168.75+/- 350+/- 812.5

0-0’13 -0’056 -0’027 +0’027 +0’056 +0’13

+/- 0’01 +/- 0’02 +/- 0’02

July 17th, 2019

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FOREIGN EXCHANGE

+/- 0.0057 +/- 0.0104 +/- 0.0251

0-0.0107 -0.0061 -0.0035 +0.0035 +0.0061 +0.0107

+/- 0.0035+/- 0.0061+/- 0.0107

+/- 350+/- 610+/- 1070

0

0-0.0104 -0.0051 -0.0027 +0.0027 +0.0051 +0.0104

+/- 0.0027+/- 0.0051+/- 0.0104

+/- 270+/- 510+/- 1040

+/- 0.0027 +/- 0.0044 +/- 0.0095

+/- 0.0041+/- 0.0078+/- 0.0135

+/- 512.5+/- 975+/- 1687.5

0-0.0135 -0.0078 -0.0041 +0.0041 +0.0078 +0.0135

+/- 0.00003+/- 0.000059+/- 0.000152

+/- 375+/- 737.5+/- 1900

-0.000152 -0.000059 -0.00003 +0.00003 +0.000059 +0.000152

+/- 0.0064+/- 0.0124+/- 0.0235

+/- 400+/- 775+/- 1468.75

0-0.0235 -0.0124 -0.0064 +0.0064 +0.0124 +0.0235

July 17th, 2019

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MOTION IN THE MARKETS

ENERGY & METALS

+/- 1.07+/- 2. 11+/- 5.79

+/- 1070+/- 2110+/- 5790

0-5.79 -2.11 -1.07 +1.07 +2.11 +5.79

0-0.48 -0.26 -0.15 +0.15 +0.26 +0.48

+/- 0.082+/- 0.145+/- 0.211

+/- 820+/- 1450+/- 2110

+/- 0.15+/- 0.26+/- 0.48

+/- 750+/- 1300+/- 2400

0-0.211 -0.145 -0.082 +0.082 +0.145 +0.211

0-50.20 -19.50 -9.40 +9.40 +19.50 +50.20

+/- 9.40+/- 19.50+/- 50.20

+/- 940+/- 1950+/- 5020

+/- 5.3 +/- 10.9 +/- 29.3

July 17th, 2019

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tastytrade.com/tt/shows/splash-into-futures-with-pete-mulmat

FOR A DEEPER DIVEWatch Pete on Splash into Futures at 12:00p CT

MOTION IN THE MARKETS

AGRICULTURE

+/- 8.90+/- 18.10+/- 46.70

+/- 445+/- 905+/- 2335

+/- 9.5 +/- 18.4 +/- 51.1

0-46.70 -18.10 -8.90 +8.90 +18.10 +46.70

+/- 8.40+/- 16.10+/- 50.30

+/- 420+/- 805+/- 2515

0-50.30 -16.10 -8.40 +8.40 +16.10 +50.30

0-33.10 -12.30 -5.80 +5.80 +12.30 +33.10

+/- 5.80+/- 12.30+/- 33.10

+/- 290+/- 615+/- 1655

+/- 6.1 +/- 10.6 +/- 26.1

July 17th, 2019

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CORRELATION PAIRS TRADES

BUY / SELLSELL / BUY

NO TRADE

BUY / BUYSELL / SELL

0.50 to 1.00

-0.50 to 0.50

-1.00 to -0.50

MARKET RELATIONSHIPSCORRELATION

0.1 0.81

0.9 0.93

0.95

0.94 0.98

0.97

0.85

0.920.9

0.63 0.66

0.4

0.4

0.48

0.22 0.62

A market correlation is a measure from -1.00 to 1.00 that identifies a positive or negative link between the pricing of multiple assets. These relationships are used to determine the direction and relative strength of evolving price action.

High and low correlations between pairs make them good candidates to trade. Correlated markets move in concert with one another, either in a positive or negative fashion.

July 17th, 2019

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CALENDARKEY FUTURE EVENTS

The economic calendar shows the scheduled news events or data releases related to the economy and financial markets. These include GDP, Non-Farm Payroll numbers, and interest rate decisions. Events are listed along with the scheduled time of the release.

Each event is graded:• Gray - Minor events likely to have a minimal market impact.• Blue - Events that may have a market impact and indicate some caution is warranted at this time. • Red - Significant news/data release, which is highly likely to move the market in a significant way.

JULY14th Retail Sales

7:30a CT

USJULY15th

JULY16th

Home Sales9:00a CT

US JULY23rd

Personal Income7:30p CT

US JULY30th

Ivey PMI9:00a CT

CAD AUG6th

Trade Balance7:30a CT

CAD JULY22nd

Rate Announcement1:00a CT

JPY JULY29th

PMI8:45a CT

US AUG5th

PMI2:00a CT

EURO JULY21st

Retail Sales11:00p CT

JPY JULY28th

PMI8:45p CT

CNY AUG4th

JUY17th Retail Sales

7:30a CT

CADJULY18th

JULY19th

GDP7:30a CT

US JULY26th

Unemployment7:30a CT

US AUG2nd

Unemployment7:30a CT

CAD AUG9th

Nat. Gas Inventories9:30a CT

EIA JULY25th

AUG1st

Nat. Gas Inventories9:30a CT

EIA AUG8th

Crude Inventories9:30a CT

EIA JULY24th

Rate Announcement1:00p CT

US JULY31st

Crude Inventories9:30a CT

EIA AUG7th

Unemployment3:30a CT

UKCPI7:30a CT

CAD

Rate Announcement6:00a CT

UK

July 17th, 2019

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Motion in the Markets is a succinct reference guide for anyone following markets as well as those who already have or are thinking about trading futures. Whether it be intraday, weekly, or even monthly trading, this piece allows readers the context around several outright futures markets, and their common pairs, as those markets move.

Though Motion does not provide traders with direct ‘buy’ or ‘sell’ signals, it does alert them to what a normal day, week, ormonth’s worth of trading has been using the most recent six months of data and assigning 1 standard deviation moves to those timeframes. From there, futures traders can draw their own assumptions and trade while keeping the probabilities in mind.

MOTION IN THE MARKETSAPPENDIX

July 17th, 2019

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EQUITIESEverything is pegged against the S&P 500 futures contract (/ES). Thus, one point in the spread is equivalent to one point in /ES - $50.

To calculate this spread, we take the /ES movement and subtract /NQ*(2/5). For example, if /ES is up 10 and /NQ is up 20, then the spread (/ES-/NQ) is +2. The same thought process exists for /ES and /YM. To calculate this spread, we take the /ES movement and subtract /YM*(1/10).

TREASURIESAll standard deviation numbers are in terms of the front leg of the relationship. We calculate the ratios and spread values for Treasuries in accordance with the Chicago Mercantile Exchange’s (CME) calculations. Whereby, the ratio is based off dollar valueof a basis point (DV01) and the spread is priced in ticks of the front leg contract multiplied by the number of front month contracts.

The ratios are:TUT Spread (/ZT to /ZN) is 2 to 1FIT Spread (/ZF to /ZN) is 5 to 3NOB Spread (/ZN to /ZB) is 5 to 2BOB Spread (/ZB to /UB) is 3 to 2

Foreign ExchangeFX pairs featured in the “Spotlight” are all quoted in terms of pips in the front leg of the relationship, similar to Treasuries. This works easily for the Euro-Yen (/6E-/6J) and Canada-Aussie (/6C-/6A) trades that are one to one. Since a pip in Pounds (/6B) is half as much as /6E, we use twice as many /6B contracts for every /6E.

MetalsWe trade Gold (/GC) and Silver (/SI) on a one to one basis due to their equivalence when factoring in notional value and implied volatility.

AgricultureThough Soybeans (/ZS), Wheat (/ZW), and Corn (/ZC) all move in the same quarter of a penny tick increments, the notional value of /ZS is twice that of /ZC. Thus, we use two /ZC contracts for every /ZS, but we do /ZW to /ZC on a one-to-one basis.

MOTION IN THE MARKETSAPPENDIX