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.

How do I decide what type of protection?

I was looking today at what gives me the best protection ahead of the USDA crop report.

To answer that question one has to ask more questions; such as how long do I want protection; what type of protection do I need if we move X cents or X dollars up or down......how much do I want to spend.

So after one answers those questions the next thing to do is the what if's; for me I use position book from RJO and run various what if's.

Today I ran the example of if I want to spend $50k in protection using Dec put options what gives me the best bang for my buck.  Do i buy out of the money options?  In the money?  Deep out of the money?  Etc

So I decided to run threw some what if's using Dec corn futures and various strikes.  I believe that I want to have the trigger pulled by July 4th ish; on the cash side; so i ran what if's or theoretically values based on July 6th.

I took 50k and bought as many put options as I could using the following strikes.

5.20 or ATM puts which i figured at 41-42 cents i could buy about 24 of them
5.00 or OTM put which i figured at 31-32 cents i could buy about 32 of them
4.50 or Deep OTM puts which i figured i could buy 77 of them
4.00 or Very Deep OTM (OTM out of the money) which i figured i could buy about 286 of them.

I didn't take into account the more commissions with the more quantity; but here is what i found that gains or losses to be (theoretically based on no volatility changes) at these various futures levels on the Dec Futures

6.00 Dec Futures - all four of the trades are big losers; with the ATM losing the least at 38k loss; followed by the 5.00 puts which lose about 41k, then the 4.50 puts which loss 45k, and lastly the 4.00 puts have lost about all value down about 48k.  Now if we are a producer this is the best option if you don't have 100 % protection because it means we have rallied 80 cents and should have more then paid for the 50k paid in protection


5.00 Dec Futures...give the Higher the strike the more profit. The 5.20 would be up aprox 2500, the 5.00 strikes about 1200, the 4.50 would be losing about 4500 and the 4.00 strikes would have lost you about 14k



4.50 Dec Futures....Here is where you see them all start to make money; this time however the more puts you have the more they make; so the best performance at 4.50 on July 6th ish would be the 4.00 puts which should be up about 75k, followed by the 4.50 puts which should be up about 60k, then followed by the 5.00 up about 48k, and lastly the at the money 5.20 puts are now up only 42k



4.00 Dec Futures....this levels and below is where you really see how well leverage can work for one.....the pattern is the same you are better off having bought more out of the money puts then you are at the money puts even though we are not yet in the money on the 4.00 puts they lead by far; you would now have turned your 50k investment into about 306k profit, your 4.50 would be 176k, your 5.00 would be 111k, and your 5.20 puts would be up about 94k profit



3.50 Dec Futures.....This is where you hit the home run so to speak; turning your 4.00 puts that are worth less then 4 cents when you buy them into about 55 cents each; having bought 286 of them you are now up nearly 750,000 in profits, the others also do good; but not even close versus having the many more 4.00 puts; the 4.50 puts would have about 335k in profit; the 5.00 puts would be up about 111k, and the 5.20 puts up about 94k

Bottom line when deciding what type of coverage you are looking for don't forget to look at the what if's; also keep in mind that the what if's i am looking at are based on 60 days from now; not expiration; as at expiration 4.00 dec futures don't make you any money at 4.00 puts; but in the shorter term they could make you a lot of money

Overall it seems to make sense to buy more OTM if you plan on only holding a short term; they don't perform as well in a sideways market nor an up market; but they are in another league as for performance in a down market

Please give me a call if you have questions

and as always make sure you understand that futures and options are very risky

Here is a screen shot of the what if's that i used in the above example

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

Neutral Nick Update 3-11-12

Neutral Nick updated today; first time in nearly a month.

I hope to post more screen shots of his present positions later in the week; one thing he is trying to do is not trade as much as last year and watch his gamma exposure a little closer. He also isn't getting caught up in selling just one certain month of options.  I.E. last year he was mainly selling July options and didn't sell any later then that; towards the end of his run his gamma exposure was just too much; that is part of the reason you see him in options that are near term all the way to some that are out in Dec.

MWC Marketing Hour Round Table

I put up an interesting trade this week in our weekly mock trading session.

It was a hedge trade......well kind of

the trade was buying 2 May 6.00 Corn puts and sell 1 8.00 Dec wheat call

below is some of the thinking i had on in the agweb.com marketing old and new crop discussion thread


http://discussions.agweb.com/showthread.php?14346-Marketing-Old-Crop-and-New-Crop-2012&p=225650#post225650

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one strategy that we looked at in our marketing meetings this week was selling dec wheat calls to buy may and july corn puts

based on theory that dec-dec corn-wheat spread has corn well under valued versus wheat.....so selling a call in wheat instead of corn in hopes that if it turns into a HTA corn has gained some of the 1.20 or so discount that it presently is

i think the level we used was buying 2 6.00 may corn puts and selling 1 dec 8.00 wheat call for a small credit

the reason we used may instead of july or dec is protection cost of only 14-15 cents or so; plus if market breaks i don;t think new crop breaks nearlly as hard; i think breaks or rallies will be lead by old crop corn.........so if i want to protect a price break i want to protect the area that has the most risk......in this case old crop corn

it is much more risky and tricky to manage then using the same month and same commodity but it does have some reasoning behind it

any thoughts on the trade

selling 1 dec 8.00 to 8.50 cbot wheat call to buy 2 6.00 ish may corn puts......as protection against corn.....and a sale on top side for corn

Neutral Nick Update

Well it's been a couple week's since Neutral Nick jumped back on the scene; so it is about time for an update.

Below you will see some screen shots showing Nick's updates and projections; keep in mind this time nick is much more diversified into the months he has options sold and purchased.  Generally he has purchased a few nearby options and sold deferred options. He also has used his idea's on where spreads go to decide how to position himself.  His goal is no longer to stay 100,000 delta short.  His system this time is trying to make about a million dollars in each of the grains; without huge margin exposure; watching his gamma risk and not building such a huge and unrealistic mountain if you will.

Check out his info below.

The above graph on his delta position is really one thing that needs to be managed.  A couple of reasons.  A) so he doesn't swing too direction bias and stays "neutral" so to speak  B) So he can help control his margin cost.  What is his plan to do that; take a little off the top side via near term closer to the money options that have a big gamma advantage over other options he has sold or is selling.

Mock Trading Update

last week we did add a few trades during our Mock Trading session;

I adjusted my long 6.00 march puts via selling a 6.40 march corn put

I also adjusted my short July put via the sale of a 7.00 July corn call

Other new trades that where placed include Kevin with a long soybean contract versus 2 short wheat contracts

Scott went short some CBOT wheat at 674 with a stop of 6.85 and an objective of 6.50

Duane went long 2 March Wheat with a stop at 6.55 while going short 3 March corn

Please stop in Onida this Wed if you would like to join in on the fun; as it is great for learning.

Neutral Nick is back

Neutral Nick our mock trading character is back; this time with a little different rules and different game plan.  Not just focused on his delta position; nor does he no longer have an unlimited checkbook.  Plus he is planing on rolling things out this time; so no real end date.

Here are his trades to start off; many off of July futures; but some off of the Dec futures too.

Farm Direction Forward - Opening Grain Market Comments soft outside markets

Below are opening comments as well as a forward from Kevin Van Trump who will be one of the speakers for next week’s grain marketing workshop that we are sponsoring in Pierre on Feb 2^nd at the Ramkota at 10:00 a.m.; Ed Usset will be the other presenter.  Please give us a call or shoot us an email to RSVP for what should be a great time.

Markets are called mixed to supportive this a.m. behind a firmer overnight session; outside markets are a little weak and most calls are slightly below where we left off the overnight session at.

In the overnight session we saw corn up 3 on the old crop while new crop was off 2, beans unchanged to down a couple,  MPLS wheat was 4 higher, KC wheat was up 3, and CBOT wheat was up 5.  At 9:00 outside markets have crude down a little over a dollar a barrel, equities are weaker with the DOW down 82 points, and the US dollar is firmer up 379 on the cash index at 80.247.

Not much for new news out this a.m.  The rumors

Midwest Marketing Hour trade updates 10-12-11

Jeremey- added orders to buy kwz1 at 7.06, 7.01 and a stop at 6.95 with an objective of 7.35
- also added 1 short WN2  6.00p Put and 2 short WN2 9.00 Calls
Jordan- added orders to buy WZ1 at 6.25,6.20, 6.15, 6.10, 6.05, 6.00 stop at 5.85 on all
- also added 1 short CZ1 6.00 Call and 2 Long CZ1 670 Calls
Kevin- added spread of long KWH2 and short MWH2 at 1.1875
- also added orders to buy SF2 (Jan Soybeans)  at 12.49, 12.40 and 11.90 doubling the quantity each time.
Producer C -added 1 Short MWH2 10.00 Call and 1 Short MWH2 8.00 Put

Exiting Some Trades Ahead of USDA Report

With our new mock trading rules that allow us to simply have to post trades or exits to this blog I have decided to square up some positions that I have open ahead of the USDA Report.

To offset some trades I am doing the following at about 11 central time on Tuesday

Selling 1 Nov bean at 12.23; locking in a profit on my long beans of $2,963

Selling 2 Dec corn and buying a 7.00 put and 6.00 put to offset an old corn trade while selling 2 of the 6.80 calls.  The net of all of this is locking in a $9,969 profit.


The last trade that I am booking profits on is long 3 of the 12.50 Nov Calls against 1 short 13.00 call;  I am exiting this for about about $1000 profit

As a reminder our MWC Marketing Hour Round Table happens each Wed in Onida at 3:30; we hope to see some of you there as we will discuss the USDA report as well as updating more mock trades.

Mock Trade Update Jordan

Booked $106 profit on short 9.00 chic wheat call and $609 on 6.25 long put of chicago wheat letting short put ride. for time being.

booking profit on long long futures positions in wz1 for total profit of $9,100

Booking profit on 2 short 14.00 bean calls of $2,938

Another Classic USDA Head Fake or are we now entering Bear Market Mode?

Did today's USDA Sept quarterly stocks report with small grains summary represent another head fake by the USDA (comic strip as some call them) or was it an indication of more bear markets to come in the days, weeks, and months ahead?

The one saving spot or bright spot has been spring wheat as it has managed to bounce back into positive territory.

Below is a link to Country Hedging info on the USDA report; be sure to check out there thoughts.

(Copied from email)"

Commodity Comments

By Tim Emslie

The USDA surprised the market with much higher corn and wheat stocks in today’s Grain Stocks report, implying more feed rationing than expected.  Lower spring wheat production on the Small Grains Summary report offset some of the bearishness 

·         Video comments

·         Grain Stocks and Small Grains Summary slides"

It looks like might have spoke too soon in regards to the Spring wheat strength as it is now 20 cents off of it's highs.  I suppose that is why they said trade wheat sleep on the street's when I started this job about 10 years ago.

As for the market outlook i think we need to find some reason how we see herd sizes for livestock as big as they are while we have implied feed usage for corn and wheat as low as it has been for years.  Is it more DDG's or what is scoop there?  Perhaps the answers to the feed usage will provide direction to what fundamentally our markets are actually telling us?

Bottom line watch for some rather volatile markets as we move forward; keep in mind 2008 and the crash we seen then; but also keep in mind last Sept report and the following Oct report where the USDA found bushels or used the new crop theory.  Both seem possible while neither really seem probable given the price action over the past several months.

Mock Trading from Today's MWC Marketing Hour Round Table

This afternoon we had another MWC Marketing Hour Round Table. 

First off during the past week Dan closed two trades one for about a 40 cent winner and another for a 15 cent loser.

Kevin also exited a trade with a 10 cent winner; while Jordan and myself exited no trades last week.

I posted Dan's trades/adjustments yesterday; below are the trades the rest of us did.

Adjustments :

Jordan - Sold 2 14 nov bean calls against his long 14.00 bean call and short 16.00 bean put

Against his bean corn option spread he sold 2 7.00 corn puts and bought 2 of the 7.50 corn calls along with selling 1 14.60 nov call;

Kevin - didn't adjust any trades as he left is ratio spread trade on while took profits on another trade

Jeremey - on my ratio protection spread with Dec 12 corn call sold while owning the 7-6.50 Nov bear put spread; i sold 1 of the 7.20 Nov puts and 3 of the 7.00 Nov puts

Against my July 2012 corn ratio spread I sold 2 6.00 puts and bought 1 of the 6.50 puts July puts

That was all of the adjustments made this week; but below are the trades we made

Trades of the Week :

Kevin - Sold Dec 8.00 call while purchasing the 8.50 dec call and the 7.50 Dec put; basically sold a credit spread to purchase a put

Kevin also entered a spread trade as he sold the KC March wheat 2 times against a long March corn; he had a risk of 1000 on the close with an objective

Jordan - Went short a 8.00 KC Dec put and short a 9.00 Dec Call

Jeremey Sold 1 of the Dec 7.00 corn puts while purchasing 5 of the Oct 7.00 Puts

MWC Marketing Hour Round Table - Trades and Trace Concepts

We will be having our MWC Marketing Hour shortly and Dan the man won't be able to make it; but Dan did email over his trades for the week along with updates on his open positions.

Below is the email with his trades; look for an update on the other trades later.

"My Z 11 corn trade closed at 7.34 for a loss of .15

 

KWH 12 trade hit objective of 8.30 for a gain of .4075

 

Bean Butterfly Trade:  Jordan said the monarch hasn't made its migration yet..............Right on the money with nothing in the wallet...............only up $ 400...........Need to gain on my time value............. Let it ride!

 

And the trade of the week!    Drum roll please!!!

 

Long CZ11 @ 7.2425    Objective:  7.3625 Closing    Risk: 4 cents or 7.2025

 

Dan Powell"

 

 

please check back later as we will update all of the trades sometime after we have our marketing session.

Mock Trades for MWC Marketing Hour Round Table

Today we had another session of MWC Marketing Hour Round Table; during these meetings we go over various strategies related to grain markets/marketing, we cover the theories behind various strategies, the technical side of our grain markets as well as the charts that go with our markets, and we have some mock trading in which we place trades every week and keep track of those trade results.

Below are some of the charts we covered in this afternoon's session

After we went threw the charts we talked about rolling a covered call.

We used the example of rolling a Dec 7.00 Call sold back in March when the market was trading in the low to mid 6.00 range for around 50 cents.  We figured that today we could buy a Dec 7.00 call for about 75 cents thus locking in a 25 cent loss; but we could now sell our corn for about 7.50 on the board (7.25 net); which was about the best case we could do when we sold the call for the 50 cents to start with.

While what if we don't want to have corn sold anymore at 7.00; after all the price is going up?  Isn't it?  Well what happens if we sell a July 8.00 Call for about 80 cents.  Answer we collect a nickel or so via rolling the short option out and we now have a top limited to 8.00 on the July Futures

Here is the Math on the trades

March Price when placed 6.30

Sold 7.00 call for 50 cents; purchased back for 75 cents; loss of 25 cents

Sold 8.00 July call for about 80 cents; now net we have collected 55 cents and raise our ceiling to 1.70 higher then the board when we opened this trade to start with.

.50 collected minus .75 bought back plus .80 collected = 80 cents that we can add to our price when we end up selling the product; in exchange for that 8.00 on the July futures appears to be the max we can get unless we use another strategy similar to this.

Last but not least this week we did some mock trades

Here are the open mock trades we have after today's session.

Jordan has a long 14.00 bean call against a 16.00 bean put on one trade; presently up rather good on this trade.

Today he purchased a 7.50 corn put (2 of them) and purchased a 15.00 bean call.

He then added a spread trade via buying oats and selling corn.

Dan had a couple future trades as he went long Dec corn at with a nickel rick and an objective of 15 cents profit.  His other trade was short KC March with a 15 cent risk and an objective of about 40 cents profit.

Dan still owns the 13-13.80-14.60 Nov bean butterfly in that he is long a 13 call short 2 of the 13.80's and long 1 of the 14.60 calls.

Kevin Went long Nov Beans and short 2 contracts of Dec corn. Kevin also had a ratio spread trade open and during the last week it hit his follow up point.

He is long a 7.00 call versus 2 short 7.60 Dec call for about an 8 cent credit.  He then rolled the 2 7.60 calls out to 4 of the 8.20 Dec Calls and also managed to do this for a credit.

Myself I added a couple of option trades via buying a 7.00 July 2012 corn call against 3 short 8.50 corn calls collecting a net of about $2100 or so.  Thus having upside room and downside potential to make some money; but VOL isn't exactly my friend; so my ratio spread will be tough to manage.

The other trade I placed was hedge type of trade via shorting 1 of the Dec 2012 6.50 corn calls and buying 6 of the 7-6.50 Nov 2011 corn bear put spreads.  A bear market bet that will return good if we have a hard breakdown; while if I look at it in a producers eyes it could be similar to a ending up in a HTA contract in 12 while getting nearby price protection.

I do have one open trade out there where I have the 7.20 Dec calls and puts purchased against the sale of 3 each of the 6.50 puts and 8.00 calls.  

Neutral Nick update - Quest to make it big!!! or is it a quest to go BROKE?

Nick had to adjust his position today as May options went off the board

He did book some gains and losses off of these. He exited via MOC closes needed to offset any positions that where to come into his account; later in the weekend we should get those results up. Will need to add those to the present projections to get the total picture; but most of the closed positions have been small in comparison to what he has on the books. (Roughly 15k loss in wheat, 600k in corn, and 172k in beans- the corn number seems big but it was offset as the below shows via gains on other trades in the July.)

These are the trades he added today to get his back towards goal of short 100,000 DELTA bushels of each of the big three – Corn, Beans, Wheat
- All of today’s trades are off of the July contract
Wheat – Sold 100
750 puts
Sold 45 of the 900 Puts
Sold 200 of the 800 puts
Purchased 50 of the 850 calls and sold 100 of the 900 calls

Corn trades sold all of the following July options

Beans – Sold the following July Puts

200 of the 1300 Puts

220 of the 1260 Puts

300 of the 1200 Puts

300 of the 1160 Puts

Bottom line Nick looks to be sitting great if he can adjust fast enought, not run out of margin money, and try and focus on keeping the green line or profits/losses at the time when options expire in the middle of a rather big hump.  As you can see some of the edges look like cliff's so he has plenty of risk out there and one wrong move might cost him, his father, and his brother thier farms.

Time will tell how lucky our Neutral Nick is.

As always make sure that you realize futures and options are not for everyone. 

200 of the 8.00 Calls

200 of the 7.50 Calls

200 of the 8.50 Calls

100 of the 9.00 Calls

75 of the 7.00 Calls