Friday, May 27, 2011

Another Neutral Nick Update via the nice and volatile commodity (grain) markets.

It looks like our Mock grain trading character Neutral Nick; who has a grain marketing plan of staying short delta bushels of 100,000 bushels for each corn, soybeans, and CBOT wheat had another update today.  He is using the a delta neutral hedging type of style........but instead of long options Nick is normal just short options.  Basically if his bank roll is big enough he thinks his program or grain hedging style will add more money to his bottom line via selling the volatility and riding time out thus picking up Theta.

Today Nick did something a little different then normal..........he bought back in the money options that had seen much of the time erosion go by and then to keep on the theme of always collecting premium he sold options that helped he get close to his grain marketing plan goal of being short 100,000 bushels.

With the market movements lately Nick found himself buying in the money call options while he sold at or near the money put options.  Net he still collected money and the good thing that Nick has had going for him self is the fact that he is now up about 6.9 million dollars.

Keep in mind the risk that he is taking and the fact that it isn't suitable for many if any; plus past results don't mean the same thing happens in the future.

To get back towards 100,000 bushels Nick made the following trades.

He purchased 500 of the 7.00 July Corn calls and sold 1865 of the July 750 corn Puts. 

In CBOT July wheat he Purchased 500 of the 7.50 July Wheat calls and sold 2555 of the July 8.00 puts.

In July Soybeans he purchased 100 of the July 13.00 Soybean Calls and sold 272 of the July 13.80 Soybean puts.

I would note that as I was going threw Nick's trades and possiblities on what to do to get back towards his goal on bushels sold the thought of simply buy back or closing all of his positions cross my mind.  After all if you don't go broke making sales that make sense how would he go broke locking in nearly 7 million dollars in profits on his hedge account.  Call it fake greed if you will but I decided to adjust in a different manner and ride it out.  The good thing that Nick has going for him time value; he is down to just a few weeks.

Below are updated P and L Graphs.

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