Where Have All the Traders Gone?

One bit of fallout of the MF Global disaster is that there are a lot of traders, both professional and retail, who haven’t been able to trade. That puts a dent in trading volume at the CME Group (NASDAQ:CME).

Volume is how they make their money, and its next earnings announcement (due in late January or early February) may disappoint. In the short term, the stock has a good chance of trading lower as other traders anticipate lower earnings in regard to volume.

So, when you�re about to establish an options trade on a name like CME, how do you pick the right strike price?

Support and resistance areas can be very useful tools in an options trader�s arsenal. They can be used to identify ideal points to enter or exit positions. They can also keep you from entering a position early before there is confirmation of a trend.

Technically, CME has been in a downtrend and, on Friday, the stock rallied up to a resistance level in the $250 area. If the stock can�t get over resistance, it might be �Sayonara, Baby!�

The $240 area looks like a nice target, considering there is support at that point. This trade idea can be held longer term, but there might be a good chance for quick profits in the short term.

With CME trading here at $248.88, you can buy the CME Dec 240 Puts for $9 or less.

The long put strategy is pretty straightforward. The trade profits when the stock falls and the put premium increases as the CME option moves farther and farther into-the-money.

Maximum profit is almost unlimited only because CME can only fall to $0 (which is highly unlikely), and the maximum loss is $9 if CME finishes at or above $240 at December expiration.