USDA reports that China is the top soybean importer and purchases more than half of the beans grown in the U.S. With the impending tariffs on steel and aluminum, a trade war could be a possibility on the horizon and is certainly something U.S. farmers are talking about. What does this mean, in my opinion, more volatility ahead. The continued drought conditions in South America are only adding to this volatility. The implied volatility reached a peak earlier this week, but has come back down to a more normal level and affords a potential entry point. Without a clear price direction, but looming volatility, going long a strangle could be a great way to profit from an increase in volatility. A long strangle consists of purchasing both a call and a put, with both being slightly out-of-the-money and having the same expiration dates. A trader being long a strangle is looking for a sharp move in either direction of the underlying price. The strategy involves a limited loss, being the premium paid, but an unlimited upside.
**TRADE ALERT**
Buy 1 May Soybean 1000 put option, buy 1 May Soybean 1070 call option. Get in at 16 cents or $800 get out on a stop of 8 cents, with an initial target of 40 cents. Protect yourself on both sides and get out before April 20th.
If futures interest you or to discuss trade ideas, please give me a call.
** Call me for a complimentary consultation on any of your future and futures needs **
Michael Bullion, CAIA
Senior Technical Analyst
Walsh Trading, Inc.
Direct: 312.985.0156
888.391.7894
Fax: 312.256.0109
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.