It always seems that some sort of follow up is needed when trading; but what about when marketing grain? Lately as prices have gone up I hear allot of producers say something along the lines that they "sold too early".
Many then ask if there is something they should do to get back into the game on old sales that where once good; that now don't look as great. This on it self is a big subject that could have lots of debate..........."the trend is the friend and one needs to protect sales" or "nothing wrong with making profitable sales early; if they go bad I still have more left to sell". I am not going to try and answer that debate; but I did want to take a look at a couple follow up possible trades for those that may have sold a little early.
So I looked at this as the role of one that sold Dec 2011 corn on the board or via a HTA/Futures Fixed at 5.00. Which at the time was a sale that made sense.
I looked at what happens if one simply re-buys the board. Presently it is around 6.00; so it appears that I do open some big time downside risk as my once happy 5.00 sale could turn into something much worse if I add long futures and the 5.00 sale ends up looking good. I.E. my long futures would take away from my cash sale.
I looked at selling a put at 5.50; so basically re-ownership on a break. Not bad and helps if we keep going up; maybe not enough but I do appear to add plenty more downside risk especially if we break super hard and the sale I am trying to fix is only a small percentage sale.
I looked a buying a call; an ATM 6.00 call for 77 cents. I really don't like this play; because now if I am wrong my sale that once made sense is now at 4.23; so if we don't go up I might not even hit break even. Now on the other hand if we see 7.00 or higher corn it helps; but the risk ratio doesn't fit the best.
The last trade I looked at was selling a 5.50 put and buying a 5.60-7.00 bull call spread. This trade I like the best; but I would note that on a break I do turn a good sale bad and that is the point of this writing; that being there are plenty of follow up's but watch out for your risk as sometimes it might just not make sense to chase early sales or moves that where profitable and at one time fit your risk profile.
Having said that the reason I like the last trade; which I would call a re-ownership via a short put and a long Bull Call Spread; with the long leg 40 cents in the money is the fact that this play can make me money or add to my cash sales in more then one way. I.E. on the above call and above futures the only way I add to my earlier cash sale is if we go up and in the long call example we have to go up at least as much as I paid or I end up behind at expiration.
Whereas the last trade; the 3 leg re-ownership trade makes me 40 cents if we are unchanged; we can go down a little bit and it still makes me some money. It could make me about 1.40 on a rally and it has a profile that might allow me to leg out of in a profitable manner. As example on a big break i have a chance to sell the call I own to buy back the put that I am selling and in that case I would be left with a naked call sitting out there or I might not have to spend much to cover it.
Bottom line is that there is plenty of risk anytime one starts to chase something; but if ones out look changes or other factors that helped you make the original decision to sell change; there probably isn't allot wrong with it but make sure you have a solid plan along with risk - reward points and as always make sure to consult your professional advisor and remember that past performance doesn't mean future results and futures and options are risky and not suitable for all.
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