Carley Garner
DeCarley Trading
CBOT Wheat tends to run into seasonal headwinds in mid-October, today's rally might be a bearish opportunity.
According to MRCI, the wheat market rolls over in mid-October for a two-to-three-week period. However, in the bigger picture, $10.00 wheat is probably unsustainable despite today's rally on the news of Russian aggression in Ukraine. That said, we've seen what being early in wheat can do, so we prefer using deep OTM option strategies that give traders the ability to ride out short-term chaos (unless we get a repeat of this spring's type of chaos which is highly unlikely).
The large price spike in wheat has caused OTM call options to gain substantial value and puts to lose value. Thus, it feels like a good day to sell a call option and use the proceeds to purchase a put spread.
Alternative strategies
Limited risk traders could consider either buying the March $8.00 put outright for about 26 cents $1300 (theoretically unlimited profit potential) or buying the $9.00/$8.20 put spread for about 34 cents or $1700 and a max profit of $3300 before considering transaction costs.
March wheat bear put spread with a naked call
BUY 1 MARCH WHEAT $9.00 PUT.
SELL 1 MARCH WHEAT $8.00 PUT.
SELL 1 MARCH WHEAT $12.00 CALL.
Total COST = About 2 cents or $100 before considering transaction costs.
These options expire on February 24, with 137 days to expiration.
Margin = $2500.
Risk = Unlimited above $12.00.
Maximum Profit = About $5,000 if held to expiration and wheat is below $8.00. Traders are unlikely to hold to expiration, a reasonable profit target would be $1,500 to $3,000.
Zaner360 symbols
OZWH23 P9, OZWH23 P8, OZWH23 C12.
Due to the volatile nature of the futures markets some information and charts in this report may not be timely. There is substantial risk of loss in trading futures and options. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.
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