Last week, corn had strong upward momentum, and Jerry Gulke of the Gulke Group was looking at selling into the future and selling some puts to possibly re-own corn on a retracement. “I figured I’d sell a portion of my corn and then sell a March put at $4.70 for about a 20¢ premium. That would mean if prices drop back, I’d be long at about $4.50,” he explains. “Based on lower yields being reported in the October production report than in September, leading to apparently tight ending stocks, I figure that price level would be too low in February when the options expire to draw corn acres for 2011, and it would be more cost-effective than selling and buying calls.”
Keep in mind that if short puts are exercised and you take a long futures position, you are subject to margin calls. Gulke clients may receive additional advice regarding managing those positions.