I think it’s time to consider we sell a few put spreads either in July 2020 Beans or Sep/Dec 2020 Corn.
These take in sizable credits and can be used to finance puts for in the next 90 to 120 days.
July 2020 Soybeans
Sell the 10.00/11.00 July 20 put Spreads at 88 to 90 cents into the report collecting $4400/4500.00 per spread. You have ten to 12 cents of risk as a spread plus commissions and fees. At option expiration these max out at 1.00. If I sell at 88 cents, the max loss as a spread would be 12 cents.
Spread settled at 87 cents today.
We can use the collections for a host of trades, either near term puts and long-term call spreads to average our trade out.
I have a circle drawn at the 848/840 area this week. Should we hold here, we could see a near term rounded bottom on the weekly chart.
Underneath the drawn circle and arrow, a close under it and its katy bar the door down in my opinion…and I would be out of this position. So in my view sell the spread at 88 cents. Use the credit to buy a January 860/820 put spread for 10 cents. This gives the July puts protection.
Note: In looking at volatility today, the October 850 soybean put traded almost 4K times. A sizable amount of volume and open interest one day ahead of tomorrow’s 11 am WASDE report. This serial option expires next Friday 9/20/19.
Dec 20 Corn
Warm and Wet has continued into September so far and that is seen as friendly for development. Still who knows what’s actually been put in the ground for corn? The USDA has been too optimistic in my view so far, but on the flip side, where is demand? Good weather and low demand are not friendly for price, and in my view the charts have told the story. However the trade is going to get a real education on yield and production this year. Approximately 40 percent of the nation’s corn was planted in mid to late June. Its 4 to 6 weeks later than normal depending on the area. This week’s three percent reduction from 58 to 55 in the good to excellent condition for corn has given shorts which have amassed a 123K short in the market a reason to cover ahead of tomorrow’s report. Second biggest producer Illinois dropped 8 points in one week for corn and 6 points for beans. The condition reports overall detail a potential worsening condition in the Eastern Belt. We have a long way to go here and until we to the November report, supply side fundamentals will be the primary price driver.
If you think the late planting problems will result in lower crop sizes and problems when harvest arrives in October and November, consider the plan here.. Look to sell a longer term put spread to finance a cheap put strategy to protect the remaining downside. I think at these levels we are potentially closer to the bottom than the top.
Sell the Sep 2020 5.00/4.00 put spread for 82 cents. Or Sell the Dec 20 5.00/4.00 put spread for 78 cents. Use the sizable collections to finance a Dec 360/330 put spread for 7 cents.
Sean Lusk
Director Commercial Hedging Division
Walsh Trading
312 957 8103
888 391 7894 toll free
312 256 0109 fax [email protected]