Good afternoon friends
Corn markets closed at a one month high today, we are trading in Dec futures at the highest price we have seen in any Dec current year contract going back to 2014. Naturally, my mind goes to figuring out different ways to hedge it. Below is a video I made explaining a trade idea that will look to protect some grain you may be sitting on that is un priced, while keeping some upside in the market. I hope this doesn’t confuse too much, please let me know if you have questions.
VIDEO EXPLANATION-CLICK ON VIDEO OR LINK BELOW
SELL 2 DEC 400 CALLS/BUY 1 DEC 370 PUT- EVEN MONEY – for clarity, I priced this on the close of biz today at 375-4 Dec corn futures
What is it?
-This is an option spread that leverages upside call risk to pay for downside put protection, ideally protecting a commodity close to the money while giving you some room to the upside to sell.
-Sell 2 calls out of the money, buy 1 put at the money. Try to do it for even money (nothing is free)
Who is this trade for?
-Producers with a lot of un-priced bushels, with a need to price by Thanksgiving
-Desire to price some bushels soon at this price, but more at a higher price
-Ability to handle margin swings
-Very close to break-even levels for the marketing year
WHATS THE GIST OF IT?
Putting a floor in at 370 on some corn with a put
Putting a ceiling on double that amount at 400 with a call
(click on images for larger view)
EXAMPLE- SELLING 2 DECEMBER 2018 400 CALLS/ BUYING 370 PUT FOR EVEN
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