Summer Grain Rallies Cannot Be Trusted

Corn and soybeans, not necessarily wheat, generally suffer seasonal price pressure this time of year as the market removes the weather premium. 2022 has been a quick mover; a few weeks ago beans had removed all of the weather premium; as of today much of it has been put back into pricing due to forecasts of hot and dry weather. If the heat dome doesn't materialize, prices will likely work their way back toward $12.00 per bushel. If it does, we could see some short-term strength but a move beyond annual highs seems unlikely. Thus, we like the idea of a three-legged option spread intended to take advantage of a downtrend while leaving risk above $16.00 in the November contract (above the highs).

Alternative Strategies

Limited risk traders could look to buy the 14.00/13.00 put spread without selling the $16 call. This would be a cost and risk of about 38 cents or $1900. The max profit on this version would be about $3100 and would require holding to expiration. Alternatively, traders could buy the $13.00 put outright for about 24 cents or $1200 (max risk). If you prefer mini futures, selling a mini here risking it to a little above $15.00 is a reasonable play (each penny is $10 to a trader, so a move to $15.00 would be about $850).

 

NOVEMBER SOYBEAN PUT SPREAD WITH A NAKED CALL

BUY NOVEMBER SOYBEAN $14.00 PUT

SELL NOVEMBER SOYBEAN $13.00 PUT

SELL NOVEMBER SOYBEAN $16.00 CALL

 

Total Cost = About 10 cents or $500 plus transaction costs

These options expire on October 21, 85 days to expiration

Margin = $2773

Risk = Unlimited above $16.00

Maximum Profit = About $4,500 before considering transaction costs if held to expiration, which isn't likely...$1,700 to $2,500 would be a reasonable goal.

 

Zaner360 symbols:

OZSX22 P14, OZSX22 P13, OZSX22 C16

 

*There is a substantial risk of loss in trading futures and options. There are no guarantees in speculation; most people lose money trading commodities. Past performance is not indicative of future results.

Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.

Seasonality is already factored into current prices, any references to such does not indicate future market action.

** These recommendations are a solicitation for entering into derivatives transactions. All known news and events have already been factored into the price of the underlying derivatives discussed. From time to time persons affiliated with Zaner, or its associated companies, may have positions in recommended and other derivatives. 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. 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. Seasonal tendencies are a composite of some of the more consistent commodity futures seasonals that have occurred over the past 15 or more years. There are usually underlying, fundamental circumstances that occur annually that tend to cause the futures markets to react in similar directional manner during a certain calendar year. While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing. Even if a seasonal tendency occurs in the future, it may not result in a profitable transaction as fees and the timing of the entry and liquidation may impact on the results. No representation is being made that any account has in the past, or will in the future, achieve profits using these recommendations. No representation is being made that price patterns will recur in the future.

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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