Wednesday, January 5, 2011

markets close strong jan 5th......neutral nick update

Midweek the grains did the opposite of how they started they week off trading; in that the grains closed very firm off the board after having seen a lot of weakness in the overnight session.  The volatile markets continue.

Speaking of volatile markets it reminds me that it is time for Neutral Nick to update his position and see if he needs to add or subtract any plays for his marketing plan; as he attempts to keep a net delta position equal to about 100,000 bushels short and play off of time value and volatility in an attempt to raise his net price received.

To achieve his Delta Equivalent position Neutral Nick decided to sell 2 770 March CBOT wheat puts; giving him a position equal to short 100,182, with a gamma bushel = 722, and Theta of $1206 per day.  Without figuring his interest expense or commission's his wheat on the books is showing a gain of about $22,000 or 22 cents a bushel; when considering wheat had it's highest close since he went with his marketing plan he is really doing rather well other then the huge amount of trades, time to follow up, and margin required to get him to this point. 

Below shows his present profit/loss at both expiration and currently.   The green line is at expiration; and you can see that on this 3.00 window nearly all spots give him a gain over 200,000 or 2.00 a bushel on 100,000 bushels.

The projection comes from the software RJO Position Book; it allows one to use various what if variables which allows Neutral Nick the confidence that his plan will succeed and he will do well in his grain marketing. 

As for Nick's soybean and corn positions; he also added plays to get him back near 100,000 equivalent sold.  He sold 2 6.80 March corn calls and then 2 14.50 March Soybean calls; leaving him at 100,277 delta bushel equivalent and 100,140 delta equivalent each.

With the crop report out next week watch for some action via our other characters; some of them probably should have done some grain marketing/ grain pricing but like many of you time gets away from us and marketing plans take a back seat sometimes no matter what their importance level.

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