Should I Sell My $13 Soybean Calls and Buy Put Options?

May 2, 2016 12:00 PM
 
money-8-1238447

Inflated call options mean the door of opportunity is open to farmers who are astute option traders and willing to protect the downside, says Joe Vaclavik, Standard Grain.

“The values of the call options, which are upside protection, are hugely inflated relative to the value of the put options, which provide downside protection,” Vaclavik tells “AgDay” host Clinton Griffiths on the Agribusiness Update segment. “I think this gives a big advantage to the farmer who’s an astute option trader. You can essentially sell a call that’s way up at $13. You can buy a put that’s down at $9, only $1 below the market. You can do that spread for even money.”

Although it would be great to sell soybeans for $13 per bushel, Vaclavik advises looking at the market with longer-term lenses.

“I think the market thinks we’ve got a better chance of going to $13 than we do $9, but as a farmer, your risk is down,” Vaclavik cautions. “If you can own protection just $1 below the market and give up the price $3 above the market, I feel like that’s a fantastic deal. For the farmers right now, the options are set up in such a way where they’re going to give you a ton of room to the upside to work to pay for some downside protection that’s at a price that we could reasonably achieve if the right things happen.”

Moving forward, the biggest factor determining prices will be the weather, Vaclavik says.

Click the play button below to watch the complete “AgDay” interview with Vaclavik.

Want more video news? Watch it on AgDay.
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AgWeb Editor
Mexico, MO
5/3/2016 10:04 AM
 

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