Tuesday, February 8, 2011

Neutral Nick Update - Night before Feb USDA Crop Report

Well it is that time again; another USDA crop report.  Any suprises instore for us?  Any thing that our marketing characters should do ahead of the report?


When i personally look at options and how these reports have a chance to be big market movers I like looking at calendar ratio plays; as example perhaps tonight one should look at selling a July 6.60 Put to buy some March 6.60 puts.  With how option prices tend to work as we near experation we could see the delta position of the March puts quickly gain on the 1 July put.  The way I figured was one could buy about 6 of the March puts for every July put one sold.  Now this trade in itself it's the thing that one really likes to look at from a producer perspective as one is selling a defered put.  That basically means that if today's corn get's too cheap they will own it at the levels they sold the put at.  So generically speaking when I look at ratio type plays from a producer perspective I want to add plays that spread my risk; so a better risk diversified move for a producer who wants to find a way to pay for nearby options via the sale of a deffered is probably to sell a deffered (covered) call; that way one's big picture looks much better if we see the call turn into a short hedge. 

But for our marketing character Neutral Nick we are going down a different perspective.  He is simply trying to sell options in a manner that keeps his delta equivalant bushel position near 100,000 bushels sold while collecting lots of option premium via being mainly an option seller. So his objective and goals are different then the producer who has more to market. 

His strategies at times are that which one might look at if they where in the oversold position and wantted to try and correct.

Now back to the story;

With the markets all near recent highs/conract highs in many cases our character Neutral Nick found himself a little too short going into the report.  But with us at new highs and nearly everyone everywhere very bullish he felt the need to make sure to us an option strategy that would help protect him on a big break.


Below you will see that he sold July puts to to purchase nearby puts, nearby put spreads, and even a few nearby calls.  One should also note that all of these trades did add an net positive or collection amount.

Part of the reason for the purchase of some calls in a couple of the below commodities was to hedge against other short March calls that have a delta that could change much faster then the defered option sold.

A little over a month into his plan Nick has added a decent amount to his bottom line (based on closes) versus simply not doing anything .  Plus he has a chance to be well in front of the game if we simply continue to trade in a range where Nick sells the outside boundar.

My projections still point to him being up over a million dollars if we stay in about a 2.50 cent range when the options expire.

On the downside even though overall he is ahead he is seeing plenty of margin calls and they are not exactly the best thing to help one's sleep at night.



Long# ofOptionFuturesExpirationMy TradeFutures PriceOption PriceNotionalPosition EquivalentProfits (Losses)
or ShortContractsSymbolReferenceDateDatePriceLastLastPosition (bu)DeltaDelta (bu)Gamma (bu)ActualWith Over-RideChange
SHORT60.00WN1000CWN124-Jun-201123-Dec-201049.250 932.500 66.625  (300,000)(0.44) (130,920) (496) ($52,125)
SHORT25.00WN700PWN124-Jun-201123-Dec-201037.875 932.500 7.375  125,000 0.07  9,340  (87) $38,125
SHORT10.00WN900CWN124-Jun-201123-Dec-201073.500 932.500 104.250  (50,000)(0.60) (29,986) (84) ($15,375)
SHORT2.00WN850CWN124-Jun-201123-Dec-201089.125 932.500 129.750  (10,000)(0.69) (6,886) (16) ($4,063)
SHORT2.00WH770PWH118-Feb-20115-Jan-201127.375 874.250 0.500  10,000 0.02  231  (9) $2,688
SHORT3.00WH730CWH118-Feb-20117-Jan-201168.125 874.250 144.500  (15,000)(0.94) (14,025) (2) ($11,456)
SHORT2.00WN900CWN124-Jun-201112-Jan-201166.625 932.500 104.250  (10,000)(0.60) (5,997) (17) ($3,763)
SHORT20.00WH750PWH118-Feb-201119-Jan-201113.875 874.250 0.250  100,000 0.01  1,179  (50) $13,625
SHORT12.00WN800PWN124-Jun-201121-Jan-201158.750 932.500 28.625  60,000 0.21  12,751  (82) $18,075
SHORT30.00WN1100CWN124-Jun-201126-Jan-201139.250 932.500 42.000  (150,000)(0.31) (45,868) (214) ($4,125)
LONG30.00WH870CWH118-Feb-201126-Jan-201125.000 874.250 22.375  150,000 0.54  81,668  1,168  ($3,938)
SHORT10.00WN800PWN124-Jun-201126-Jan-201142.500 932.500 28.625  50,000 0.21  10,626  (68) $6,938
SHORT12.00WN1100CWN124-Jun-201128-Jan-201131.675 932.500 42.000  (60,000)(0.31) (18,347) (86) ($6,195)
LONG8.00WH870CWH118-Feb-20112-Feb-201123.000 874.250 22.375  40,000 0.54  21,778  312  ($250)
SHORT4.00WN850PWN124-Jun-20112-Feb-201157.500 932.500 47.500  20,000 0.30  6,017  (32) $2,000
LONG15.00WH850PWH118-Feb-20118-Feb-20119.875 874.250 9.875  (75,000)(0.30) (22,591) 519 $0
SHORT12.00WN850PWN124-Jun-20118-Feb-201147.500 932.500 47.500  60,000 0.30  18,051  (95)$0
LONG5.00WH880CWH118-Feb-20118-Feb-201117.750 874.250 17.750  25,000 0.47  11,668  194 $0
262.00 (30,000)(0.08) (101,310) 853  ($19,839)
SHORT5.00SH1300PSH118-Feb-201129-Dec-201034.500 1434.250 0.625  25,000 0.02  575  (19) $8,469
SHORT40.00SN1500CSN124-Jun-201123-Dec-201082.500 1453.250 75.000  (200,000)(0.45) (90,483) (327) $15,000
SHORT50.00SN1200PSN124-Jun-201123-Dec-201042.500 1453.250 9.750  250,000 0.09  22,364  (182) $81,875
SHORT30.00SN1600CSN124-Jun-201123-Dec-201062.000 1453.250 48.000  (150,000)(0.32) (47,735) (210) $21,000
SHORT2.00SH1450CSH118-Feb-20115-Jan-201143.500 1434.250 14.500  (10,000)(0.39) (3,918) (72) $2,900
SHORT4.00SH1300CSH118-Feb-20117-Jan-201193.875 1434.250 134.875  (20,000)(0.94) (18,782) (8) ($8,200)
SHORT15.00SH1300PSH118-Feb-201112-Jan-201113.125 1434.250 0.625  75,000 0.02  1,724  (56) $9,375
SHORT5.00SH1360PSH118-Feb-201112-Jan-201130.500 1434.250 2.250  25,000 0.09  2,135  (68) $7,063
SHORT2.00SN1400PSN124-Jun-201121-Jan-201188.875 1453.250 63.750  10,000 0.37  3,718  (17) $2,513
SHORT25.00SN1500CSN124-Jun-201126-Jan-201167.250 1453.250 75.000  (125,000)(0.45) (56,552) (205) ($9,688)
SHORT15.00SN1300PSN124-Jun-201126-Jan-201148.500 1453.250 26.750  75,000 0.20  15,276  (97) $16,313
SHORT10.00SN1360PSN124-Jun-201128-Jan-201167.250 1453.250 46.625  50,000 0.30  15,106  (78) $10,313
LONG20.00SH1460CSH118-Feb-20112-Feb-201120.750 1434.250 11.500  100,000 0.33  32,712  661  ($9,250)
SHORT12.00SK1400PSK121-Apr-20112-Feb-201142.500 1446.000 39.875  60,000 0.36  21,513  (145) $1,575
LONG5.00SH1440PSH118-Feb-20118-Feb-201124.000 1434.250 24.000  (25,000)(0.54) (13,392) 189 $0
SHORT6.00SN1400PSN124-Jun-20118-Feb-201163.750 1453.250 63.750  30,000 0.37  11,154  (50)$0
SHORT5.00SH1380PSH118-Feb-20118-Feb-20114.125 1434.250 4.125  25,000 0.15  3,669  (106)$0
251.00 195,000 (0.08) (100,915) (790) $149,256
SHORT6.00CH680CCH118-Feb-201129-Dec-201020.000 673.750 11.125  (30,000)(0.44) (13,182) (338) $2,663
SHORT55.00CN800CCN124-Jun-201123-Dec-201030.750 691.500 26.750  (275,000)(0.30) (81,983) (599) $11,000
SHORT30.00CN550PCN124-Jun-201123-Dec-201037.250 691.500 9.000  150,000 0.12  17,287  (199) $42,375
SHORT35.00CH700CCH118-Feb-201123-Dec-201016.500 673.750 5.000  (175,000)(0.24) (42,560) (1,549) $20,125
SHORT2.00CH680CCH118-Feb-20115-Jan-201118.500 673.750 11.125  (10,000)(0.44) (4,394) (113) $738
SHORT5.00CH660CCH118-Feb-20117-Jan-201115.375 673.750 22.000  (25,000)(0.66) (16,511) (254) ($1,656)
SHORT2.00CN500PCN124-Jun-20117-Jan-201120.875 691.500 3.500  10,000 0.05  517  (7) $1,738
SHORT22.00CN630PCN124-Jun-201121-Jan-201147.875 691.500 31.000  110,000 0.29  32,133  (251) $18,563
SHORT10.00CN800CCN124-Jun-201126-Jan-201128.000 691.500 26.750  (50,000)(0.30) (14,906) (109) $625
SHORT27.00CN800CCN124-Jun-201128-Jan-201124.000 691.500 26.750  (135,000)(0.30) (40,246) (294) ($3,713)
LONG20.00CH700CCH118-Feb-20112-Feb-20117.375 673.750 5.000  100,000 0.24  24,320  885  ($2,375)
SHORT20.00CK650PCK121-Apr-20112-Feb-201128.875 684.750 23.125  100,000 0.33  33,005  (367) $5,750
LONG6.00CH660PCH118-Feb-20118-Feb-20118.250 673.750 8.250  (30,000)(0.34) (10,152) 306 $0
SHORT5.00CN630PCN124-Jun-20118-Feb-201131.000 691.500 31.000  25,000 0.29  7,303  (57)$0
LONG4.00CH680CCH118-Feb-20118-Feb-201111.125 673.750 11.125  20,000 0.44  8,788  225 $0
249.00 (215,000)(0.08) (100,580) (2,720) $95,831
  

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