Grain and Livestock Outlook
Walsh Trading Commercial Hedging Service is dedicated to providing timely, relevant and quality information. Tim Hannagan, our Senior Grain Analyst provides a weekly Grain Report. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. Additionally, Mike Bauer, our Senior Livestock Analyst and Ben DiCostanzo, our Senior Technical Analyst provide frequent insights into the Livestock market. Finally, Sean Lusk and John Weyer, Co-Directors of Walsh Commercial Hedging Services provide a variety of insights into the Grain markets.
Grain Straddle Run 7/31/2013
Aug 01, 2013
Grain Straddle Run 07/31/13
By Dan Burke, Chief Options Strategist, Walsh Trading, Inc.
The December Corn is currently 474-4 last. The Dec Corn 470 straddle (114 days to expiration) is showing a last value of 52-7. The implied volatility is down as corn trades sideways. I think these are wonderful weather markets.
The November Soybeans are trading 1220-2 last. The Nov Bean 1220 straddle (86 days to expiration) is showing a last trade of 95-4. The implied volatility is steady as price action moves sideways to upward with some calm. I think there are some wonderful opportunities to the upside.
The September Wheat is resting 654-4 last. The Sept Wheat 655 straddle (23 days to expiration) is showing a last value of 32-4. The implied volatility is slightly lower on steady price action to the side. I like put side.
As we take in the price action of the grains, it is my view that the best opportunity can be taken in the November Soybeans (trading last at 1206). Recently, this market seems to be offering the best opportunity for my clients utilizing conservative strategies for my clients. It would be foolish for me to try and predict the weather and its influence on production, so in my view, it is important to take advantage of possible market movement in either direction.
Therefore, two strategies that I would recommend are classic option strategies for both the speculator and the hedger. What I am proposing is the purchase of a combination of two option butterfly combinations. This entails purchasing the November Soybean 1300 call, the November Soybean 1400 call and selling 2 November Soybean 1350 calls. The purchase price of the call butterfly is 4 cents, or in cash value $200. The risk on the trade is the cost of the spread plus all commissions and fees. In order to be potentially protected to the downside, I also propose buying the November Soybean 1100 Put, the 1000 Put and selling 2 of the 1050 puts. The purchase price of the put butterfly spread is 3.7 cents, or a cash value of $185. The risk on the trade is the cost on the spread plus all commissions and fees.
At the end of the day, it is my belief that the volatility, along with the unpredictability of the weather, compels us to protect ourselves on both sides of the market. Spending a combined $385 plus commissions and fees is about as cheap as we get in commodities. Please feel free to contact the Commercial Hedging Division at Walsh Trading at 888-391-7894. You may also visit us at www.walshtrading.com.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of Walsh Trading Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Walsh Trading Inc. Copyright © Walsh Trading Inc.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Support refers to an area on a chart where buy orders may be clustered. Resistance is an area where there may be sell orders. Fibonacci retracement is named after a 12th century Italian mathematician and based on the theory that prices rise or fall by predictable amounts after reaching a high or low.