Trading Commodities and Financial Futures: A Step-by-Step Guide to Mastering the Markets, Third Edition

8. Use options to hedge a profitable futures position

If you are a trend-following trader, like I am, and you are lucky enough to catch a major move that is showing massive unrealized profits, the great dilemma is when to cash in. You know you inevitably will have to give up a large portion of your paper gains if you wait for confirmation of a trend change. Yet, top and bottom picking are very hard things to do. There is only one top, and there is only one bottom in major moves of importance, which could develop over hundreds of trading sessions. Many times, the most important leg of a major move takes place in the past 48 hours. Why not use put options to lock in bull-move profits and calls for the bear-move profits? Commercial hedgers use options ...