AUDUSD

I decide to take some off the table with 20 pips profit at 0.8375 before AUD rate decision at 12:30am.

AUDUSD

short from 0.8395, target 0.8342.

Ratio Spread or Reverse Ratio Spread (Backspread)

Both strategies have neutral to bullish bias. But which one is better? Let's analyze. Assume both strategies are credit spreads, which is better one.
Take AAPL as of 05/28/2010 as example, it closed at 256.88 on 05/28/2010.

Ratio Spread

Buys N calls at a lower strike and sells more than N calls at a higher strike.
The maximum profit happens when the underlying closes at the higher strike on expiration date.

Maximum profit point = initial credit + (higher strike - lower strike)
Upside breakeven point = higher strike + Maximum profit point

Here I use 1:2 ratio July calls, notice the margin requirement is $42756.

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Position summary and P/L graph:

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Reverse Ratio Spread

Buy N calls at higher strike and sell less than N calls at lower strike.

Maximum loss happens when the underlying closes at the higher strike on the expiration date.
Max loss = higher strike - lower strike - credit received
Upside breakeven point = higher stike + point of max loss
Downside breakeven point = lower strike

Position:

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Position summary and P/L graph, notice the margin is small, $18900

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Clearly, backspread favors volatile securities, it expects underlying move up dramatically. It has the following advantages:

1. stock moves up beyond breakeven point by expiration.
2. stock moves up modestly early in the life cycle of the trade.
3. market condition causes IV to move up.
4. stock falls sharply and recovers.

On the other hand, ratio spreader expects underlying move up, but not too much and too quickly.

Finally, the probability shows backspread is somehow like bullish straddle:

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AAPL

spike and channel pattern. Downward slope channel is bull flag. It is also forming a potential large bull flag. The minimum target us 258-260.

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ES 05/25

Wedge fails and goes up with measured move.
In daily chart, we should have more up to go.

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ES downside target

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Sugar, Soybean, Coffee and Soybean meal

Sugar is working on its way to the channel top. Seasonal trade favors bull heavily.

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Soybean is at the bottom of trading range, look for bull setup. Seasonal trade favors bull.

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Coffee is between 130 and 140 for some time. Seasonal trade favors one more up before any downside move.

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Soybean meal High 2 is working on right now, it should have one more push to 300 area.

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ES and BP

ES might form a third push down after upward correction.

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BP weekly calmly reached the measured move target.

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EURUSD

h&s bottom in H1 to 1.2710 area or a little lower.

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ES 60mins

still forming a bull flag, another up leg is coming, to 116x.