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Using Futures to Capitalize on the Coronavirus Pandemic Panic

The 2020 outbreak of the novel coronavirus (COVID-19) has driven unprecedented participation in the global financial markets. Heavy daily traded volumes and extreme pricing volatility have become new norms. Although the risk profile is greatly enhanced, active traders are privy to rare opportunities.

No matter which market you are looking at, it is highly likely that extreme pricing fluctuations have defined early 2020. One way to capitalize on the action is by trading futures contracts. In doing so, you can maximize your capital efficiency and benefit from the COVID-19 panic.

Micro E-Mini and E-Mini Equity Index Futures

Late February and early March of 2020 brought a chaotic period on Wall Street, featuring several history-making events. Multiple coronavirus-driven market crashes rivaled those experienced in 1987 and 2008. For the period of Feb. 27 to March 12, the Dow Jones Industrial Average (DJIA), S&P 500 (SPX), and NASDAQ Composite (NASDAQ) were extremely active:

Date DJIA S&P 500 NASDAQ 100
February 27 -1191 (-4.4%) -137 (-4.42%) -414 (-4.61%)
March 2 +1294 (+5.09%) +136 (+4.60%) +384 (+4.49%)
March 9 -2014 (-7.7%) -225 (-7.60%) -624 (-7.29%)
March 10 +1167 (+4.8%) +135 (+4.94%) +393 (+4.9%)
March 12 -2352 (-9.99%) -260 (-9.51%) -750 (-9.43%)

As you can see from the table above, the impact of the coronavirus on U.S. equities was staggering. Emergency rate cuts from the U.S. Federal Reserve, surprise economic stimulus packages, and constant COVID-19 headlines drove unprecedented participation to the markets. Unfortunately for traditional “buy-and-hold” investors, profits could only be secured from bullish bumps in stock prices, not the sell-offs.

One of the premier benefits of equity index futures is flexibility. Trading the Micro E-mini and E-mini equities indices has several key advantages over stocks or ETFs:

  • Implement bullish or bearish strategies
  • Apply enhanced leverage courtesy of reduced margins
  • Pay low all-in commissions and exchange fees, free of management costs
  • Enjoy consistent market depth and efficient market entry/exit

Access to leverage, ability to go long or short, and low cost structure make Micro E-mini and E-mini equity index futures ideal for engaging the U.S. stock markets.

COVID-19 Impact on Commodities

Stocks aren’t the only assets driven directionally by the COVID-19 pandemic. Energies, metals, and ag products have also displayed a keen sensitivity to the spread of the virus.

The impact of the COVID-19 on commodity pricing is multifaceted. During uncertain times, investors often turn to assets such as gold to hedge against unknown risk. This was the case throughout Q1 2020 amid the coronavirus outbreak. From January 1 to March 12, spot gold rallied by 3.8 percent, posting new all-time highs above $1,700.00 in the process.

Conversely, COVID-19 brought serious demand-side questions to the global oil complex. A projected economic slowdown and lagging Chinese consumption caused West Texas Intermediate (WTI) and North Sea Brent (Brent) futures to post multiyear lows. Agricultural commodities faced similar demand-oriented issues. Livestock, grains, and oilseeds all came under immense bearish pressure as COVID-19 hysteria coupled with U.S.-China trade strife ravaged the markets.

Once again, the inherent flexibility of futures provided participants the ability to trade market fundamentals. Whether buying gold futures as a safe haven or selling ag and energies to profit from demand-side uncertainty, futures can help you competently manage the evolving COVID-19 situation.

Using Futures to Trade the Coronavirus Pandemic

On March 11, 2020, the World Health Organization officially labeled the novel coronavirus (COVID-19) a pandemic. As a result, travel bans, stimulus packages, and emergency monetary policy measures were implemented. Subsequently, extreme volatility has become a new staple of the world’s capital markets.

To learn more about how you can use futures to secure market share amid COVID-19 mania, schedule your free consultation with a market pro at Daniels Trading today.

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Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the “risk disclosure” webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

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