Weekly Cattle Commentary 6/23/2017 The bulk of the week’s cash prices ranged between 122 and 123$, with the end of the week dropping to 120$. Dressed sales 190 to 195$. Basis by Friday was 1$ over the June Live board. Estimated weekly slaughter was 632K head, 24K larger than the same week last year. Box… Read more.
This week we will touch briefly on what happened in the pork product market, the live hog market and how this will likely play out this week.
Often, there are a number of traders with a bad taste left in their mouths after they trade options. More often than not though, this distaste is from a lacking risk management plan – not the instrument. In this article, I am going to introduce two simple concepts for managing risk with your option positions.
As prudent, astute investors, I’m sure you have been watching this significant sell-off in the Precious Metals sector. If you bought or purchased Gold coins or bullion from 2010 to as recent as last month, you’re likely underwater. As a perpetual Bull on Gold, I understand how to manage risk and try to convey this to my clients.
Commodity option contracts are decaying assets. Unlike futures contracts from which they are a derivative, option contract values are lost each day to time decay. Therefore, it is prudent to liquidate long option positions even if the target price is not yet realized before time value diminishes the premium.
A commodity option contract is a decaying asset that will expire. As an option contract draws near its expiration date, set by the exchanges, both the time value and intrinsic value diminish. Time value is premium in relation to days until expiration. Intrinsic value is the premium in relation to the strike price’s distance from underlying futures contract price.
It is essential to understand option expiration, exercising, and assignment as a commodity option trader. Know these principles, whether purchasing outright calls or puts, selling or “writing” option contracts, or using complex option spread strategies. Not only will you be better equipped for such events, but also having this acumen could potentially improve your trading performance.
Learn a different way to combine options to take a specific idea and put it into action.
If you are a “writer” of commodity options, you inherently have exposed and unlimited risk. However, it’s this risk potential that provides the capacity to reap rewards. Therefore, a savvy commodity option writer understands that managing risk is more important than reaping rewards. In a previous article, I detailed a strategy to execute a strangle with protection against those inherent risks. In this article, I will discuss a strategy to help protect a current position. These strategies can be tailored to reach your short term objectives and long term goals.
The recent break in the grain markets has had my phone ringing with producers and speculators alike, clamoring for a plan to handle what they perceive to be a confusing market. For the first time in two months, I could feel some panic coming from those who are long the markets. Many are fretting they… Read more.