Monday, July 11, 2011

Option Trade ahead of USDA July Supply and Demand report

As we go into the USDA July crop report I got to thinking what type of trade helps out in both the bearish and bullish worlds.  So I looked for a trade that I thought had a potential to make money either direction; I found that it is hard to GTD a winner; but the one thing that can be done is having a risk management plan in place ahead of time.

A normal risk management plan when trading might be something like buy Dec corn at 6.35; risk to 6.20 (i.e. put a stop in at 6.20), with an objective of 7.00.  So trying to risk 15 cents to make 65 cents.  Plenty of possibilities but in trading and grain marketing risk management should be considered ahead of time to help keep away the impulsive bad fear and greed decisions that have a tendency to find us.

Here is what I came up with for an option strategy for Dec corn.

In looking at the above P L Graphs which one would you prefer to have?  I think I would take the one that isn't trying to guess where the price will be when these options expire; maybe doesn't have the upside that the others do but anytime one can turn in a free trade with a chance of a nice winner; how do you go wrong?

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