Commentary:
Will the inflationary enviroment that has ignited a major rally in gold and silver push funds into “discount” prices of corn, beans, and hogs? Will they diversify into tangible asset commodity classes deemed potentially cheap? They could down the road as the uncertainty of a Presidential election, uncertain potential party swings in the US House and Senate, and the continuance of money printing by the US Treasury to aid the economy amid the pandemic. Corn and Soybean prices may see another leg lower if needed rains continue across the Midwest into August. Spot corn and soybean contracts may trade down to 3.00 in corn and and 850 in beans. Should the dip occur, its my belief that one be ready to long the market at those levels. The powers that be in the US Congress are debating the size of the next bailout. The beginning bid is 1 trillion dollars. Crazy times we are living in currently. In my view the fight to stave off deflation could bring about inflation. In fairness I wrote about this potential in the Spring and so far we haven’t seen futures prices inflate for corn, beans, and hogs. We have too much of everything right now according to the USDA. I’m suggesting three trades and courses of action one can take using 3 way option strategies. We are essentially making bets that prices in corn, beans, and hogs will eventually return to pre covid levels. The strategy is to sell high and then buy back low. In my opinion I dont think its unreasonable for prices to trade higher on a inflation inspired rally over time.
Trade Idea
Futures-N/A
Options-Buy the Feb 21 72 call. Sell the Feb 21 80/70 put spread. Bid negative 800 on the three way option spread.
Risk
Futures-N/A
Options-The maximum loss here is 4K. So in bidding negative 800, one is collecting 800 points on the way in or $3200.00 minus commissions and fees. The max loss on three way is 200 points or $800.00 plus trade costs and fees. Looking for a move toward the gap at 67, if taken out the market can push to the 71/72 area.
Trade Idea
Futures-N/A
Options:Buy the July 21 corn 4.00 call and then sell July 4.00/450 put spread. Bid negative 38 cents. Buy the July 21 soybean 10.00 call and sell the July 11.00/10.00 put spread at neagtive 80 cents.
Risk
Futures-N/A
Options-Corn The maximum loss here is $2500. Once collects 38 cents upon entry or 1900 minus trade costs and fees. The risk is then 12 cents or 600 dollars plus commissions and fees. Pre-Covid levels had July 21 corn at 420. Not sure if we see 420 but a move near 4.00 is within reason in my view. Beans I see moving to 994 on a rally. That level represents a 50 percent retracement of the 2016 high of 12.08 to last years low of 791. We are utilizing July 21 beans so we have time. The max loss on the bean strategy is 5K. However we are collecting 80 cents or 4K on the way in. The risk is 1K then plus commissions and fees.
This is just one way to establish static longs in the market with defined risk. If you would like to hear more please join me each and every Thursday at 3pm for a free grain and livestock webinar. We offer trade suggestions like the ones above plus supply, demand, weather and the charts. Sign Up Now
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