This blog update is highlighting the Market Action Alert Soybean Spread entry that was released and sent to subscribers of the Market Dimensions advisory 1/5/15. This is the 2nd spread entry for the month of January 2016. If you would like to follow these Market Action Alerts, as well as my short term futures trades, contained with-in my MDA SnapShot, I encourage you to sign up for your FREE subscription to the service. To see an archive of my MDA alerts please visit my blog archive here: https://www.danielstrading.com/market-dimensions-advisory/
Published 1/5/15:
Traders,
I have my eye on a seasonal spread in the Soybean market. This will be a bull spread buying July and Selling November. We are approaching a seasonal play 1/31/16 that shows a bullish move in this relationship. When looking at the price action of the July16 vs the Nov16, we see that there is quite a divergence in the price relationship we have seen in the 5y 10y and 15y historical patterns. It appears only 2-3 years in the last 20 has had us at these prices and stayed at these prices until expiration. I like the upside potential on this trade as we historically have been trading 30 cents higher than these prices. It makes me think if we get any strong bullish fundamental grain or Soybean news we have some nice room to run up.
From a technical standpoint, we have a nice channel forming between -1.75 cents on the high side to about -6 to -7 cents on the downside. Currently, we are trading right about in the middle -4.25 cents. I am looking to get long this spread @ -5 cents or better. The goal is for us to trade back into parity and look to trade at 10 cents. The 200-day moving average has us @ +14.5 cents so I will keep a long term on that as target 1.
The spread relationship on Soybeans allows us to take advantage of reduced margin. The margin associated with these 2 contracts $495. As you can see over the past 2 months this contract has only traded 4-5 cents in either direction. So this could be a longer term trade. The idea is to get in now and look for a pop of fundamental news that could pop us higher quickly. This is a spread that you can take advantage of the lower margin and hold multiple positions. If you have the margin available and comfortable with the risk, I would suggest looking to trade 4-5 contracts to start. To discuss what is best for you and your risk tolerance I recommend you reach out to me to discuss.
Spread Trade: Buy July Soybeans – Sell November Beans – 1/5/15
Entry: -5 cents or better (-0.0500) to buy side dt Pro (last at -4 cents)
Risk: Looking to risk 10 cents or $500 on the trade (before fees)
Target: First Profit target is +10 (+15 cents or $750 before fees)
Margin: $495 per contract
Daily Soybean Spread Chart – July16 vs November16 – Source dt Pro:
Seasonal Price Movement:
Risk Disclosure
STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
EXAMPLES OF SEASONAL PRICE MOVES OR EXTREME MARKET CONDITIONS ARE NOT MEANT TO IMPLY THAT SUCH MOVES OR CONDITIONS ARE COMMON OCCURRENCES OR LIKELY TO OCCUR.
STRATEGIES USING COMBINATIONS OF POSITIONS, SUCH AS SPREAD AND STRADDLE POSITIONS MAY BE AS RISKY AS TAKING A SIMPLE LONG OR SHORT POSITION.
EXAMPLES OF HISTORIC PRICE MOVES OR EXTREME MARKET CONDITIONS ARE NOT MEANT TO IMPLY THAT SUCH MOVES OR CONDITIONS ARE COMMON OCCURRENCES OR ARE LIKELY TO OCCUR.
THE RISK OF LOSS IN TRADING COMMODITY FUTURES AND OPTIONS CONTRACTS CAN BE SUBSTANTIAL. THERE IS A HIGH DEGREE OF LEVERAGE IN FUTURES TRADING BECAUSE OF SMALL MARGIN REQUIREMENTS. THIS LEVERAGE CAN WORK AGAINST YOU AS WELL AS FOR YOU AND CAN LEAD TO LARGE LOSSES AS WELL AS LARGE GAINS.
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