CZ9 /CH10 Spread

Marginas in corn spreads are low because in "theory" they are less volatile.

Full commercial carry costs are calculated assuming $0.00165 per bushel per day storage costs and a 3.10 percent interest rate.


Stuff routinely gets past 70 percent carry, especially in well supplied markets. You've got to remember that a little over a year ago we had 12-24 dollar wheat and 8 dollar corn. That takes a shit load of fallow, and CRP acres. There is a lot of corn and wheat. After this soybean bull passes over, there will be a lot of beans as well. I'm getting sidetracked though, you won't* see spreads get past 100% carry because then specs could just take delivery of grain, and use it for a risk free profit in a further out month. That is why you always see a ton of buying anywhere near full carry because it is about as safe as trade as you can get.
 
Rtrader2525 - where did you obtain your storage prices from? The storage price I received from my broker's back office was 8.25 cents per bushel. I am now thinking that they quoted their storage price for me (like I want to incorporate that headache into my plan) and not what the commercials are paying. Sounds like I left some money on the table with spread. Oh well, I will wait for the time to re-enter those beans spreads.
 
Quote from Rtrader2525:

Marginas in corn spreads are low because in "theory" they are less volatile.

Full commercial carry costs are calculated assuming $0.00165 per bushel per day storage costs and a 3.10 percent interest rate.


Stuff routinely gets past 70 percent carry, especially in well supplied markets. You've got to remember that a little over a year ago we had 12-24 dollar wheat and 8 dollar corn. That takes a shit load of fallow, and CRP acres. There is a lot of corn and wheat. After this soybean bull passes over, there will be a lot of beans as well. I'm getting sidetracked though, you won't* see spreads get past 100% carry because then specs could just take delivery of grain, and use it for a risk free profit in a further out month. That is why you always see a ton of buying anywhere near full carry because it is about as safe as trade as you can get.
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Ok this is becomming more clear but that brings me back to my original question (that I may not have asked clearly)

What then is my risk? $42.70? Forty two dollars? If it is currently trading at a spread of 13 for the sake of arguement could it not tighten up and then I loose a boat load or is the $42 bucks my max risk before they kick me out of the trade should it go against me?

It also sounds that about $150 per contract is the most I could make (which is of course acceptable) but I may be a bit late in the game to pull that off.
 
Your risk is theoretically unlimited, say every planted bushel of corn in the US catches blight and ruins it, then that spread will go from a 13 half cent premium to the march side, to a 5.00 premium to the december side. Is that unlikely? Hell yes, but it could happen. The spread might move around a little bit more by the time that late nov early dec rolls around, but all signs point to a gradual widening of it. Anytime you are selling a front month in the grains, if some shit hits the fan supply wise you could get your ass handed to you.

I.E. You are long March wheat and short Dec (sprd) and some kind of wheat blight strikes. Bye bye contango.
 
Quote from Rtrader2525:

Your risk is theoretically unlimited, say every planted bushel of corn in the US catches blight and ruins it, then that spread will go from a 13 half cent premium to the march side, to a 5.00 premium to the december side. Is that unlikely? Hell yes, but it could happen. The spread might move around a little bit more by the time that late nov early dec rolls around, but all signs point to a gradual widening of it. Anytime you are selling a front month in the grains, if some shit hits the fan supply wise you could get your ass handed to you.

I.E. You are long March wheat and short Dec (sprd) and some kind of wheat blight strikes. Bye bye contango.
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OK, that is what I thought origially but when I spread stock options in the past the margin would be the max risk (or so I remember it many years ago). So when I saw the super low low margins I had to question it.

For a second I thought I became illuminated :) -Too good to be true.

Based on your last statement I would rather just short Dec with a 20 pt stop and do what I do then to have this low risk illusion with the shit fan possibility lurking round the corner.

Thank you all for your help.
 
I would tell you that it is just inherently risky to have a short grain position on in any shape or form (spread, option, or outright futs) during planting and harvest as anything can happen.

You've just got to examine what you "want" out of the trade, are you looking for a higher r:r play? Then go outright, corn to me looks like it has room for some more legs down. I am short the spread, but that doesn't mean I can't pile some naked Z shorts on top. Be flexible, it doesn't hurt a guy to be at least familiar with spreads.
 
Oh yeah, I am not swearing off the spread for life but in this situation I don't feel comfortable with it after our exchange. (I put the post up cause I felt I was missing something and I sure was...)

I went long about 2 days before the frost rumor just for technical reasons and made out well ... then I though about reversing and doubling down near the top but I didn't cause in my eyes it could have been the turning point for the year. Not sure why I thought that but with a little confirmation from the last few days I am looking for a good short entry.

The spread seemed like a good play at first but if things did suddenly shift that would suck if I were spreading, but no biggie if it was a standard trade for me. at the end of the day it may be the same damn thing but I guess for now I feel like spreading would make me loose more control than I would be confortable with.
 
I would totally agree that the margins can be a bit misleading, do the math regular corn margin is $1600.00 at a $47.00 marg. you could put on 34 spreads. Now 34*50=1700 a full cent. Do you want that kind of exposure?
 
But, just because you can put on a 34 lot in the spread with the same margin in the outright, like you said why would you. Unless you have the acct size to handle the heat
I imagine just toggle your position size accordingly to your account & what risk you can sleep at night with.

If the opportunity is there, you should go for it in a way in which is feasible to allow you to trade it & not crap yourself everytime it ticks down against you..

Maybe 5, 10, 15 lots or whatever.
 
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