Wednesday, May 4, 2011

Neutral Nick Update - Is a $20 million dollar profit in the cards?

Nick Update – 5-4-11
It appears Nick is finding out that to keep his program going things keep getting bigger; as in bigger lots trader; bigger reward and thus bigger risk

Once again Neutral Nick did sales only and all July options

Soybeans – Sold 300 of the 13.60 calls, 300 of the 14.00 calls, 200 of the 14.60 calls and 45 of the 13.00 puts

Corn – Sold 500 of the 7.50 calls, 350 of the 8.50 calls, and 40 of the 7.00 puts

Wheat – Sold 400 of the 8.50 calls, 250 of the 8.00 calls, and 50 of the 7.00 puts

Added the potential that if we stay between all of the above strikes $3 million dollars; leverage have to love it and HATE it!

Nick has really found plenty of errors in his plan. Overall he still thinks the concept works; but if his bank pulls the rug under him he goes BROKE and in a hurry.

Please don't try this strategy at home :)  Also keep in mind the risk in futures and options as they are not suitable for many.

The biggest thing Nick is really lack is risk management; cash flow and margin requirment are unrealistic in most opinion's and typically if one enters any trade you are better off having a defined risk ahead of jumping on the ride.  He really doesn't have any; his concept is simply add to the position and adjust; which if done properly without seeing the money run out and staying close to neutral may be manageable.  But what would have happened to him if this corn crop would have turned into the MPLS 2008 wheat type of market?  The good thing about options is he may have had a little more flexability then if he was simply short;  but his concept would have also had him over leveraged and thus potentially broke.

Bottom line is going forward Nick will really need to fine tune and take what he and myself have learned the past several months and try to have a more defined controlled program going forward if Nick doesn't want to give the farm away.

But for now we will look at where he could be and that simply put more then likely looks good; but usually don't things always look good at the top?  What happens to Nick if China really comes and buys up a bunch of old corp corn that isn't there to be bought?

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