Neutral Nick Grain Marketing Plan and Results

This page has updates on the character Neutral Nick

Below are links as most of Nick's information has been done via regular posts on the grain marketing plans blog.

Update on Neutral Nick 1-7-11

ith the rather volatile price swings we seen this week; I have seen plenty  of producers that one day are looking to buy back because it appears we might go higher and then the next day are selling or wanting to sell in fear that it will go lower.  Basically another volatile weak in the grain futures markets that left more questions then answers. 

Technically I mentioned the US dollar above and that could be one of the more concerning items when one looks towards the future of the grains.  The price action when seen this week was the dollar hold support near the 50% retracement and also support near the trend line.

With the volatile price action we have seen this week it has caused our marketing character Neutral Nick to have to make additional trades.  When I looked at what adustments needed to be made to keep him near 100,000 bushels sold; i first thought to see if there was anyting great that locked in a profit.  I really didn't see any trades where we where up more then a dime and generically speaking I don't want to lock in profits that end up paying more in commission then actual profits.  So as a general rule Nick doesn't sell options unless he can get 10 cents or more and usually won't try to take profits for under a dime.

To keep him near 100,000 bushels of each wheat, corn, and beans sold Nick added the following which add to the hedge statement making it even more complicated.  He sold 3 730 CBOT MARCH WHEAT Calls for 68 cents a piece. 

With the March Wheat futures trading at 7.74 he figures this play is similar to adding 22 cents (7.30+.68-7.74)  cents to his wheat price versus just a straight sale;or receiving 7.98 (if we expire above 7.30) his big risk is that we expire below 7.30 and which case he no longer has sales on.

For beans he added 4 short 13.00 March Soybean calls for 93 cents a piece.  Once again very simliar to wheat in that this is a re-ownerhsip strategy via selling an in the money covered call.

For corn he switched things up a little bit as he sold 5 of the 6.60 March corn calls, sold 2 of the July 5.00 corn puts, and bought 5 of the February (Serial Option), 6.00 calls.

When looking at his performance for the past couple of weeks Nick leaves today a little dissappointed; as the last time he looked his July 10.00 Wheat calls that he sold where worth about 46 cents and the board was about a quarter higher.  Yet today those calls are still worth about 46 cents even tough the board is a quarter or so cheaper.  I guess that just helps show what swings in volatily can do to option prices.

Another thing that he has noted is that even though he has a net delta position that is show about 100,000 bushels his wheat options lost value alround despite the board showing weakness the past couple of sessions at a time when he was short.

Next week we have the USDA report out so Neutral Nick is trying to think and watch out for market trapes.  When he thinks of marketing trapes or mistakes in trading/marketing  one thing that comes to mind is leverage and the potential for over leverage on the wrong side of the market.  So with the report out the one thing Nick won't be doing is adding short option positions that expire rather soon because the closer they are to the money and as time erods those options have the potentail to see thier gamma and delta move rather fast.

So the only really short term options Nick will work with heading into the USDA report will be those on the long side; wether it is a put to protect or a call to re-own.

Below is Nick's updated position

Here is an update of what his position looks like after adding plays to keep him near his goal of 100,000 equavilant hedged.

As mentioned every week at minimum he will add legs or take plays off to help keep his delta bushel near 100,000 bushels hedged; no cash sales or forward contracting just plenty of calls to the banker to get his line of credit extended as he tries to play both side of the markets until late June hoping his aggressive and most likely unrealistic style adds premium to his net ending price.

Note the pink lines are the trades done today to move his position closer to 100,000.  You can see that it won't take much more of a rally in wheat and he will need to follow up via either taking off calls sold, purchasing futures, purchasing calls, or selling additional puts.

Long# ofOptionFuturesExpirationMy TradeFutures PriceTheoretical Opt. ValueNotionalPosition Equivalent
or ShortContractsSymbolReferenceDateDatePriceLastPer UnitTotalPosition (bu)DeltaDelta (bu)Per Unit ChangeActual Gain loss todays close
SHORT60.00WN1000CWN124-Jun-201123-Dec49.250 836.250 47.375  $142,125  (300,000)(0.33) (98,558) $0.01875  $5,625
SHORT25.00WN700PWN124-Jun-201123-Dec37.875 836.250 29.875  $37,344  125,000 0.21  26,015  $0.08000  $10,000
SHORT10.00WN900CWN124-Jun-201123-Dec73.500 836.250 72.500  $36,250  (50,000)(0.45) (22,724) $0.01000  $500
SHORT2.00WN850CWN124-Jun-201123-Dec89.125 836.250 89.250  $8,925  (10,000)(0.53) (5,287) $(0.00125) ($13)
TOTAL WHEAT97.00 $224,644  (235,000)(0.21) (100,554) $16,113
SHORT5.00SH1300PSH129-Dec34.500 1377.000 34.500  $8,625  25,000 0.30  7,455  $0.00000 $0
SHORT40.00SN1500CSN124-Jun-201123-Dec82.500 1386.500 90.000  $180,000  (200,000)(0.42) (83,222) $(0.07500) ($15,000)
SHORT50.00SN1200PSN124-Jun-201123-Dec42.500 1386.500 39.000  $97,500  250,000 0.21  52,859  $0.03500  $8,750
LONG20.00SG1300PSH121-Jan-201123-Dec23.500 1377.000 20.000  ($20,000) (100,000)(0.25) (25,111) $0.03500  ($3,500)
SHORT30.00SN1600CSN124-Jun-201123-Dec62.000 1386.500 68.250  $102,375  (150,000)(0.33) (49,549) $(0.06250) ($9,375)
TOTAL BEANS140.00 $368,500  (175,000)(0.13) (97,568) ($19,125)
SHORT6.00CH680CCH120.000 29-Dec21.125 624.000 21.125  $6,337  (30,000)(0.33) (9,994) $-    ($338)
SHORT55.00CN800CCN124-Jun-201123-Dec30.750 635.750 29.875  $82,156  (275,000)(0.28) (76,953) $0.00875  $2,406
SHORT30.00CN550PCN124-Jun-201123-Dec37.250 635.750 31.750  $47,625  150,000 0.25  37,976  $0.05500  $8,250
LONG20.00CG630CCH121-Jan-201123-Dec24.500 624.000 25.125  ($25,125) 100,000 0.49  48,751  $(0.00625) $625
SHORT35.00CH700CCH118-Feb-201123-Dec16.500 624.000 16.625  $29,094  (175,000)(0.28) (48,341) $(0.00125) ($219)
LONG30.00CG600PCH121-Jan-201123-Dec23.375 624.000 16.625  ($24,937) (150,000)(0.34) (51,039) $0.06750  ($10,688)
TOTAL CORN170.00 $115,150  (350,000)(0.114) (97,372) 38
You will notice that Nick used different styles with a rather big varience in regards to total contracts.  In the wheat he simply sold calls and sold puts, while in the corn he has puts bought, calls bought, as well as both sold.

I should mentioned that when I asked for the margin requirments on these mock position it appeared that the wheat margin requirements where about two to two and half times that of simply being short the delta equivalant.

This will be one thing to watch as we go forward; to achieve what he wants how many additional trades will he have to add?  Will it be successful or has he just created a creative plan to spend lots of money on commissions?


Neutral Nick has another unique style.  He tries to sell all of his grain on July 1st;  or when the July options expire; but in the meantime he uses delta neutral hedging ideas to try and collect premium.  With the recent run up in prices he has the following plan for his wheat; 1st off he has HRW wheat; but he likes to use CBOT options because of liquidity.  So he places GTC orders to buy 10 KWN and buy 10 WN at 50 cents and then again at 75 cents; if filled it keeps him hedged in correct contract.

He then decides that joy to the season and he places hedges that create a position that leaves him with a net delta position of short about 100,000 contracts of each corn, wheat, and beans.  Thus leaving him net sold out.  His style is over aggresive but his plan is to simple adjust as needed to keep his net delta short aprox 100,000 of each grain thus basically leaving him sold out. 

The follow ups will be to keep position near a net of zero; i.e. if we rally he will sell more puts......if we break he will sell more calls.

In the wheat example if we stay between 7.00 and 8.50 he adds over 2.40 a bushel to his price; nearly a quarter of a million to his bottom line.

Below is a copy of the table used for the three commodities; look for him to add trades ever week or so to keep position neautral; keep in mind that his exposure or risk is huge if he doesn't follow things up as he runs risk of having way too much sold or owning more then he orginally did.  This is a strategy that will and could take more then just a little margin or line of credit.

Long# ofOptionFuturesExpirationMy TradeFutures PriceTheoretical Opt. ValueNotionalPosition Equivalent
or ShortContractsSymbolReferenceDateDatePriceLastOver-RidePer UnitTotalPosition (bu)DeltaDelta (bu)Gamma (bu)Theta / DayVega
SHORT60.00WN1000CWN124-Jun-201123-Dec49.250 823.000 49.250  $147,749.00  (300,000)(0.328) (98,430) (400) $779  ($6,286)
SHORT25.00WN700PWN124-Jun-201123-Dec37.875 823.000 37.875  $47,343.00  125,000 0.235  29,485  (163) $242  ($2,237)
SHORT10.00WN900CWN124-Jun-201123-Dec73.500 823.000 73.500  $36,749.00  (50,000)(0.445) (22,269) (75) $137  ($1,139)
SHORT2.00WN850CWN124-Jun-201123-Dec89.125 823.000 89.125  $8,912.00  (10,000)(0.513) (5,139) (15) $27  ($229)
97.00 $240,756.00  (235,000)(0.199) (96,352) (653) $1,186  ($9,891)
SHORT40.00SN1500CSN124-Jun-201123-Dec82.500 1369.250 82.500  $164,999.00  (200,000)(0.395) (79,125) (229) $686  ($7,408)
SHORT50.00SN1200PSN124-Jun-201123-Dec42.500 1369.250 42.500  $106,249.00  250,000 0.228  57,095  (262) $582  ($7,331)
LONG20.00SG1300PSH121-Jan-201123-Dec23.500 1360.000 23.500  $(23,499.00) (100,000)(0.291) (29,156) 280  ($725) $1,319
SHORT30.00SN1600CSN124-Jun-201123-Dec62.000 1369.250 62.000  $92,999.00  (150,000)(0.311) (46,722) (150) $498  ($5,125)
140.00 $340,749.00  (200,000)(0.139) (97,908) (361) $1,040  ($18,546)
SHORT55.00CN800CCN124-Jun-201123-Dec30.750 625.750 30.750  $84,562.00  (275,000)(0.279) (76,867) (442) $516  ($4,091)
SHORT30.00CN550PCN124-Jun-201123-Dec37.250 625.750 37.250  $55,874.00  150,000 0.276  41,414  (268) $248  ($2,210)
LONG20.00CG630CCH121-Jan-201123-Dec24.500 614.000 24.500  $(24,499.00) 100,000 0.445  44,510  499  ($540) $683
SHORT35.00CH700CCH118-Feb-201123-Dec16.500 614.000 16.500  $28,874.00  (175,000)(0.264) (46,280) (510) $561  ($1,394)
LONG30.00CG600PCH121-Jan-201123-Dec23.375 614.000 23.375  $(35,062.00) (150,000)(0.400) (60,149) 761  ($761) $1,002
170.00 $109,749.00  (350,000)(0.114) (97,372) 39  $24  ($6,010)