Neutral Nick update booking more profits.

Well we are nearing July option expiration; so it is time for our mock trading character Neutral Nick to update some positions.  Take profits on some positions and add some more positions in his attempt to collect premium and dollars.

So to start with today our trading character is updating his July bean positions; pulling them off a few days ahead before they expire.  The good news is he is up about $250,000; minus about $12,000 in commissions he is net up about $238,000 after he pulls his positions.  The bad news is that if he where to leave his positions on and July beans stay where they are to up just slightly he could add nearly $150,000 more to his bottom line.  So why not leave positions until things expire.  One word

Gamma; his delta position could swing big time if we have more volatile days like today in the next couple of days.  With today's strong market he is up much more then he hoped so he doesn't feel like risking exposure should we have two or three more days like today.

Here is a look at his profit and loss graph and it shows he is giving up a little potential income; but it also shows that should we move out of the range show (plus or minus 40 cents) he would be worse off then he is today.   Bottom line he is taking risk off the table as his game plan isn't and never really has been to try and out guess the market but to sell volatility and time premium.

For July corn he is taking off all of his positions as well; spending about 16,000 in commissions but locking in profits of 166,000 or net $150,000.

You can see by the below graph that there is not much left to gain and still plenty to lose should corn come under pressure in the next few days and that risk is once again why he is locking in profits.  No reason to get greedy.

A couple weeks ago Neutral Nick locked in his profits for wheat which can be found here http://grainmarketingplans.blogspot.com/2012/06/neutral-nick-update-as-he-locks-in-more.html

With the above beans and corn trades he has now locked in net after commissions of profits over $500,000 off of the July options and another 200,000 or so off of the May options.  So net he is up over $700,000

His remain positions are currently up about 154,563; but it is now time to add some adjustments and try to do more of the above in the future.

For his trades to keep things simple he is selling 40 of each of the following

6.50 Dec corn calls
5.00 Dec corn puts

6.50 March corn calls
5.00 March corn puts

15.00 Nov bean calls
13.00 Nov bean puts

15.00 Jan bean calls
13.00 Jan bean puts

6.50 CBOT Dec Wheat puts
7.50 CBOT Dec Wheat calls

6.00 CBOT March Wheat Puts
8.00 CBOT March Wheat Calls

Generic theme of the above that he sold is we are close to the middle with the present price; so he is trying to continue to sell time and volatility premium without having a strong market direction bias.

The below screen shots show all months for the various commodities with the new trades included

Beans get smacked! - Neutral Nick update time

Beans got smacked today so it is time for Neutral Nick to look at his positions in an effort to try and manage his risk.

He went threw all of his positions and felt good about all of the months and all of the commodities other then July beans.

For corn he felt that his p & l graphs where at good support areas and didn't feel the need to chase in which might cause a lot of whipsaw action.

Same for wheat.

Before his soybean adjustments which I will display below he has overall profits in most of the trades he has on and his expiration profits giving him a much more potential.  Those charts have changed since his last update about a week ago.  You can find them at http://grainmarketingplans.blogspot.com/2012/05/neutral-nick-update-nearly-200k-booked.html

Soybeans today broke some major support and could very well see plenty of follow threw weakness; then again if you look at the report a couple days ago you might think beans have plenty more upside.

The corn and wheat markets are at the bottom end of the ranges they have been for some time; if we don't bounce Mr Neutral Nick might have to look to adjust sometime in the near future as he does have put options sold that are now close to or in some cases slightly in the money.  As mentioned before Neutral Nick this time around is using a little bias and his bias for those markets are A we are near a harvest low for wheat and we have year over year month over month decreasing supplies and B the cash corn market has shown no weakness leaving the cheapest spot to buy corn still the board for many so he isn't wanting to adjust at this time and C the new crop corn showing a yield of 166 is a little premature; Nick and myself are in the camp that we should see a weather scare at some point.

Here are Nick's updates and his corresponding bean graphs.

His only trades this week are the sale of 50 July 13.50 puts and 100 of the July 14.50 calls.  With us getting closer to the June expiration of these options this will probably be the last time he sells any July options.  He might buy some; but one thing he has to watch out for is Gamma Risk.

Neutral Nick Update - Nearly 200k booked profits

It's been a while since we heard from our mock trading character Neutral Nick.  That is both good and bad; good in that he hasn't been over trading and bad that he hasn't done a good job following up and monitoring his positions as much as he should be.

He recently had his May options expire; in which he left most expire worthless; both the ones he owned and had sold.  But he did have some soybean options that left him long; he chose to get out of them on the close on Friday.

Net with all of his May options expiring and his now turned futures positions Nick booked $193,437.50 profit before his costs and commissions.

Under normal full service brokers he would have paid about 10,800 in commissions; discounted online brokers could have been much less.

For his new trades or updates he has plenty of them with it being some time since he has followed up.

For corn his updates are buying back all of his cheap call options sold for nice profits and selling other options to pay for them as well as some more deferred options that fit his market ideas so he did the following basis Friday's close

Bought 70 CN 700 calls
Bought 120 CN 750 calls
Sold 50 CN 600 puts
Sold 50 CU 600 calls
Sold 50 CZ 600 calls

For soybeans he sold 100 of each of the following

July 1500 calls, 1450 puts
Nov 1600 calls, 1200 puts

For wheat he bought back 40 of the July 8.00 calls that he had sold and then sold 50 of each of the following

Sept 7.00 calls
Sept 6.00 puts
Dec 6.00 puts
Dec 7.50 calls

Overall the one thing you notice is he tried to take away some gamma risk and tried to sell more deferred options; his preference is out of the money with about 5 months left.  He also bought back and placed trades that follow his bias


Below are his P L Graphs; this doesn't include the nearly 200k winner he booked above; also keep in mind that he has risk between commodities and between different months.

Following that are each commodity broke down per contract month as he is looking to book consistent winners every time an option expires via continuing to sell time and volatility and that is what the above trades are trying to accomplish.


Keep in mind that he does have plenty of risk in in strategy

Trade Strategy ahead of USDA Report - Allendale Estimates on Balance Sheet

Below is a press release with Allendale’s estimates for the next USDA report.

Things could get very ugly if we see a carryout number close to where Allendale has it pegged at

Don’t be afraid to get some protection ahead of the report that is out May 10^th

My thoughts are that we should see 5.00 area on the board hold as support until the point that the market feels like the corn is actually going to be there; if Allendale is right and we see a 2 billion bushel carryout or higher many have targets for corn starting with a 3 on the board; one that we regularly follow has a 3.50 target…………..as mentioned I am not that bearish and I think we have a long way before knowing that the crop is made but still the risk is out there and we need to keep in mind that USDA is king as to moving the prices; so it is very possible that we see bearish numbers that leave many unsold and un protected

For those that are undersold for new crop and wouldn’t be against selling some at 6.00 on the dec board here is a trade that would protect should things fall out of bed between now and July 4^th;

It is a trade that I wouldn’t hold after July 4^th because of how time value tends to work and depreciate against one

The trade is selling a 6.00 Dec call; which now becomes the max you get for your corn;

Then selling a 5.00 put and using finance of the short call and short 5.00 put to buy a multiple of 4.00 Dec corn puts (aprox 14)

Here is the trade on a graph; it shows that a steady market to slightly up market the trade doesn’t cost you anything by July 4^th; at expiration the max you can get for your corn is 6.00; but likely one pulls off this trade right after or before July 4^th and replaces with a sale or opens the top side back up

If we lose a dollar between now and July 4^th ish the trade should net you over 5,900 or about 1.18 a bushel in protection.

The key with buying multiple puts is not to get stuck in the range where one sold the 1 put and the area where you bought multiple so this trade is designed to exit either right before the June 30^th report or shortly after because the risk in between the strike levels used

The short call should be treated like always when selling covered options; some of you that might mean just making a sale when option expires; others might want to buy back if you can at 25% or less of what you sold for; some might risk it to double what you sell it for.  (keep in mind that the short call gives you margin requirements and possible margin calls and carries unlimited risk)

Here is the mentioned graph

The redline shows the expected what if 64 days from now or July 6^th; the green line is at expiration which I wouldn’t recommend at all for this strategy ;  it is a plan to prevent against a train wreck where we see acres go up or carryout numbers huge like the Allendale press release below

This first screen shot shows 5.80 down to 2.80 red line is July 6th

This next screen shot is for July 6^th; but it shows the market if we go up or stay the same; where the strategy would cost you about 1400; but in a sideways to slightly up market one might hold this trade longer with proper risk management as net cost is 0 at expiration if Dec corn stays between 5.00-6.00 on the futures; presently at 5.30

It also shows the unlimited risk in an up market; but if this is a hedge the cash should be sold and that should off set the hedge loss

To recap

The thoughts are to place above trade; exiting around July 4^th in a down hard market; and holding re-evaluating the trade in a sideways to slightly higher market (probably lifting the short put at that time)

Bottom line is with the risk out there some sort of marketing plan is advised that helps one lock in profits while keeping a little upside open; the above is just one thought out of thousands of possibilities; if you want to discuss any please give me a call.  Some might want to just look at doing something simple like buying the cheap out of the money puts for comfort.

As always keep in mind that futures and options are risky and not suitable for everyone.

Jeremey Frost

Grain Merchandiser

Midwest Cooperatives

800-658-5535

800-658-3670

605-295-3100 (cell)

605-258-2166 (fax)

jeremey.frost@chsinc.com

www.midwestcooperatives.com

http://grainmarketingplans.blogspot.com/

This communication may contain privileged and/or confidential information and is intended only for the use of the individual or entity to which it is addressed.  If the reader of this message is not the intended recipient, you are hereby notified that any unauthorized dissemination, distribution, and/or use of this communication is strictly prohibited.   This communication makes no representation or warranty regarding the correctness of any information contained herein, or the appropriateness of any transaction for any person.  Nothing herein shall be construed as a recommendation to buy or sell any commodity contract.  There is a risk of loss when trading commodity futures or options.

From: Allendale, Inc. [mailto:gmcbride@allendale-inc.com]
Sent: Thursday, May 03, 2012 7:45 AM
To: CO-Pierre, Jeremey Frost
Subject: May 2012 Supply & Demand Estimates

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PRESS RELEASE 5/3/12 For Immediate Release Contact: Rich Nelson 800-551-4626 Allendale, Inc. Allendale's WASDE Estimates May 2012 Corn - USDA yield will be 166.2 due to early plantings. Their production will be 14.645 billion and stocks of 2.072. Allendale assumes 161.36 trend yield adjusted to 163.78 due to early plantings. Our production estimate is 14.432 billion and stocks of 1.934. Argentina production is 20.5 mt (USDA 21.5). Brazil production is 62 mt (USDA 62). Soybeans - Estimates are made using 43.96 for trend yield. New crop US exports are a record 1.525 billion bushels. Argentina production is 43.0 mt (USDA 45.0). Brazil production is 66 mt (USDA 66). 2012/13 stocks are calculated assuming massive 50 mt and 78.5 spring 2013 crops for ARG and BZL. Wheat - A record yield of 46.40 is expected. This surpasses 2010's 46.35. A record winter wheat yield of 48.5 is used. The previous winter wheat record was 1999's 47.7. USDA will use trend yields for other spring and durum.      Supply & Demand, to be RELEASED 7:30 AM CST ON 05/10/12 PRODUCTION           11/12      12/13       Trade  Average     Actual     In million bushels   USDA      Allendale    Range Estimate   05/10/12 Corn                 12358       14645 Soybeans              3056        3207 All Wheat             1999        2271 Other Spring           455         481 Durum                   50          83 Winter                1494        1707  HRW                   780        1060  SRW                   458         428  WW                    256         219 US ENDING STOCKS           USDA       ALDL       USDA     ALDL in million bushels         11/12     11/12       12/13     12/13 US Corn                     801        772                  2072 US Beans                    250        210                   132 US Wheat                    793        775                   916 WORLD ENDING STOCKS         USDA       ALDL       USDA     ALDL in million metric tonnes   11/12     11/12      12/13     12/13 World Corn                122.71    121.30               162.20 World Soybeans             55.52     54.10                60.20 World Wheat               206.27    205.92               206.21   Commodity trading is risky. Allendale, Inc. assumes no liability for the use of any information contained herein. Past financial results are not necessarily indicative of future performance. Information contained herein was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. Allendale, Inc 800-551-4626 www.allendale-inc.com   research@allendale-inc.com

Neutral Nick update up over 18 million; not bad on 300,000 bushels

Neutral Nick updated his position on a day when he probably should have simply exited everything with a rather nice 18 million or so gain.

Mr Neutral did do something a little different today as he took some off the top and took a little risk away; but still if he would have simply closed his positions he wouldn't have had any risk going to the bank and cashing in.  The reason why Nick didn't do the right thing is because it wasn't in his plan; perhaps next week or in the next few days he will change and get out like he should?


Today's trades where as follows in soybeans he bought 190 of the 14.00 July soybean calls; which got him back to around 100k bushels of sold in delta terms. 

For corn he sold 2000 of the 7.80 puts, sold 670 of the 8.00 calls, and purchased 1750 of the 7.50 calls.  Once again all July; and if one recalls his marketing plan will end in 12 days one way or another as that is when all of the July options expire.

For wheat he used July CBOT options and sold 1310 of the 7.80 calls, purchased 1000 of the 7.50 puts, purchased 500 of the 7.30 puts and purchased 550 of the 8.00 calls.

Below is a consolidated view of all of his trades as well as profit projected and present.

A couple things that really stick out are the amount of trades needed or done for corn and wheat versus soybeans.  In the beans he has had to trade far less quanity and he is up more.

Keep in mind that futures and options are risky and not suitable for all and past performance doesn't mean similiar future results nothing in this blog is a trading reccomendation.

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.

Neutral Nick update

Well we are done to a month to the day.

The day that the options expire that our Mock Grain Marketing Character Neutral Nick has been using; it has been a long rather stressful ride for him in these volatile markets.  Nick stil has a chance to make it huge; but he also has a chance to lose the farm in the finally few weeks if he doesn't do a good job managing his very much over leveraged position.

Neutral Nick Update Shell Shocked via commodity price movement

First off I want to wish my wife Happy Anniversay!

As for our MOCK trading character Neutral Nick; he got shell shocked so to speak; as he like many producers has been a little busy; and he found his hedge account not where he wished it to be.

A couple days ago Nick looked at where his hedge account was in regards to profit/loss; before the movements the past several days he was up around $5 million dollars in profits; while yesterday his acount had fallen all the way back to around even; after the drop in volatilty his account today showed gains off about 1.3 million.

Nick's Margin Requirement's - WOW!!!!! Good? Bad? Lot of Cash either way!

I asked Country Hedging for the margin requirements that they would have for the mock marketing character Neutral Nick; so I sent them (Joel the main contact for MWC) all of Nick's trades and prices of his trades.

Here is the response I received

"Here is what I got from the back office:

Corn:

Initial margin $6.796298 million

Cash $5.351587 million (incoming cash from the sales of options)

Margin Deficiency $1.444710 million

Soybeans:

Initial Margin $5.201993 million

Cash $5.201993 million

Margin Deficiency $1.518638 million

Wheat:

Initial Margin $6.420553 million

Cash $4.781843 million

Margin Deficiency $1.638710 million"

Now when I first look at it my response is ouch that is alot of money; but then I look back at Nick's projections and look at a rate of return.  Just for rounding previous posts indicate that Nick has a chance to be up 14 million; let's say we take off slippage and fees and come up with a 13.5 million number.  Which it could be alot worse or better when things are done depending on his actions and more importantly the market movement and volcity of that said movement.  But if we take 4.5 million roughly out of pocket margin requirment and use the 13.5 million as an target for profits; that is a 300 % return.  Nick started this program or plan about the last week of Dec; his options expire the last week of June.  So if I look at it under those terms Nick has a chance (assuming the risk associated with futures and options doesn't break him first, his banker held in there, and his wife didn't pack up in leave because of all the stress) a chance to have an annualized return of about 600 percent. 

This blog and the works therein are hypethetically and don't mean results will be similiar.  But so far if he can beat the things working against him he has a good chance that both in dollar terms as well as percentage terms things good go rather well for them.