Grains Journal

[Buy1Sell2]

Quote from zf trader:

Right now I would be caution buying grain options right now. I don't have easy access to the data but I would imagine vols have increased dramatically.

I was think about a long soybeans short wheat trade, any thoughts

No thoughts on the spreads. I have recently gone away from those as I see them as profit defeating in the interest of partial safety. I think outright trading with perhaps a hedge on the same month/commodity is a better plan.

As far as the option volatility goes, certainly that would be up. I'm not buying calls though, I am buying puts and only for profit protection. -A different kind of stop if you will. In other words, I can't get stopped out and have the market reverse upwards on me leaving me on the sidelines. I think it's a good plan when the contract has advanced 25% of face value since my entry.

 

[Optionpro007]

1.- Could you tell us how do you arrive to the number of options contracts to purchase in a case like this. Let's say for example being long 10 corn contracts.

2.- Will the options be for the same front month always, or do you buy more time?

Thanks.

Quote from Buy1Sell2:

Putting in some orders here to buy out of the money corn put options (below the market). 280, 290, 300. This will protect my quite a bit of my profits, while allowing me to participate in a larger move higher. This is one of the few scenarios where I will buy options. A very strong parabolic type of move will lead to me doing this. If it is not parabolic, it's difficult to have the premium make sense.

 

[Buy1Sell2]

Quote from optionpro007:

1.- Could you tell us how do you arrive to the number of options contracts to purchase in a case like this. Let's say for example being long 10 corn contracts.

2.- Will the options be for the same front month always, or do you buy more time?

Thanks.

1) 1 for 1 when buying for profit protection.

2) Typically the same month but some will be earlier if I don't plan on holding ie when the trend is getting long in the tooth. If I plan on holding a long time, I may buy more time so that the time premium doesn't erode so quickly. I do it differently at different times.

 

[zf trader]

If you want a form of profit protection why not consider selling your futures and using some of the profits to buy calls? Since you are buying premium anyways this will allow you to clearly define your profit and risk.

I guess the other way to look at it is how are your going to unwind you long put long future position? Furthermore believe that any option strategy should be constantly adjusted. You could adjust your long call position by selling futures and rolling up and down the strikes with you options. I am not sure how you would adjust your protective put position.

 

[Buy1Sell2]

Quote from zf trader:

If you want a form of profit protection why not consider selling your futures and using some of the profits to buy calls? Since you are buying premium anyways this will allow you to clearly define your profit and risk.

I guess the other way to look at it is how are your going to unwind you long put long future position? Furthermore believe that any option strategy should be constantly adjusted. You could adjust your long call position by selling futures and rolling up and down the strikes with you options. I am not sure how you would adjust your protective put position.

I have defined my risk by buying puts. There is no intention of unwinding my long position, unless I am fortunate enough to get out near the top and the puts begin to earn on the way down. Otherwise, I will hold the puts to expiration or sell at a loss. It's crop insurance--the cost of doing business.

 

[zf trader]

I don't want to be offensive but it sound to me that you are a little over confident from your very profitable grain trades. With your one put to one future you are only about 60% hedged. While you downside is limited There is no way to put a dollar amount on it. Your strike could get pinned, there could be a big swing in volatility and you have already paid a high premium.

If you switch to long calls (I am aware of the synthetic call that a long put long underlying equals out to but it doesn't allow for adjustments) you can define your risk to a specific dollar risk. It is my opinion options strategies have a negative expectation UNLESS THEY ARE constantly ADJUSTED.

 

[Buy1Sell2]

Quote from Buy1Sell2:

I went long Dec Corn 245. This is the beginning of my fall strategy of buying corn and adding on dips. I will switch to the July Contract at some point. I am way underleveraged at this point with no stop in place and the idea is to add positions and reap a large gain on a bullish corn position sometime before next May/July.

I have now reaped what I think I should for now in Dec Corn. I sold today at 317 1/2 for 72.5 cents profit. I am leaving the profit protection puts in place so that if the bottom drops out, I will make money there as well. Net average sale would then still be around 308 if the puts expire worthless. Thus, the worst I can do is 63 cents net profit per contract. Nice!

 

[Buy1Sell2]

Quote from Buy1Sell2:

I typically only use strangles as a naked short when the market will stay in between. Right now, Novie Beans look to me to have quite a bit of upside reversal in them. A move above the reaction high of 561.75 would be quite bullish, however I think you could get long now and use a stop well under the reaction low of 536.75.

yes!

 

[Buy1Sell2]

Quote from Buy1Sell2:

Just checking in here. I am staying long the Dec Corn for now. Long Novie Soybeans today at 5.58

Corn sold today. I'm still long the Novie Beans(currently at 6.10). It's hard for me to see getting out just yet!

 

[Optionpro007]

Great trade b1s2, congrats. Could you tell us the technical reason exhibited in the chart for exiting the trade? You are obviously also long the Dec puts, correct ?

Quote from Buy1Sell2:

Corn sold today. I'm still long the Novie Beans(currently at 6.10). It's hard for me to see getting out just yet!