Commentary
May soybeans saw corrective selling today before closing at $15.15, down 13 cents on the day. May soybean meal saw losses of $5.60 and closed at $487.80. May soy oil saw selling alongside crude oil, closing 179 points lower at 58.66 cents. Soybeans saw losses amid profit-taking after the recent four-day rally and ahead of tomorrow’s WASDE report. It was a sea of red for most commodity sectors today as the Dollar rallied while equities and energies got slammed following comments by Fed President Jay Powell that were seen as overly hawkish in my opinion. US Ending stocks for beans are looking to come in at 220 million bushels versus 225 last month. The range of guesses is from 200 to 250. As eyes are always on the bean ending stocks number, the trade will also have an eye on Brazilian and Argentine soybean production. Argentina is the problem in my view and the drought there is a big reason why we have 15.00 old crop beans and meal near 5.00. Historically high in my view. Argentina is the World’s largest bean crusher. The average trade guess for production there is 36.65 million metric tons, down almost 5 million metric tons from last month. Whisper numbers from private crop scouts are 5 to 6 million metric tons below USDA due to recent crop condition ratings that came in below 5 percent good to excellent. Yikes. Because of that, trend and index following funds have built a record long position in meal. Argentina is the biggest bean crusher in nthe World. When I see a record short or long in the market, it’s easy to become a contrarian in my opinion especially heading into Month and Quarter End at the end of March. Notice the bearish engulfing pattern a few weeks ago in meal and the failure so far this week to retest and take out the highs. Should the prior high hold I would consider the following trade.
Trade Idea
Futures-N/A
Options-Buy the May 23 meal 480 put. Sell the Jan 24 380 put for even money or parity Diagonal option strategy here. We are buying puts 8 handles out f the money while selling the Jan 24 put 48 handles out of the money. Volatility play here.
| ZMF24P380:K23P480[DG] |
Risk/Reward
Futures-N/A
Options-unlimited risk here as one is selling an option that expires 8 months later approximately than the long option. Rule here is that as we enter into this trade as a spread, we exit as a spread. Suggested stop loss is at 5 points or $500.00 per spread plus commissions and fees. The cost to entry here is zero dollars plus trade costs and fees. The goal is to see the record long length in the spot contracts get sold faster amid liquidations with the long option trading well below 480, putting the long put in the money. Given timing here the delta on the long option should increase faster than the Delta on the short put. Call me with questions.
Please join me for a free grain and livestock webinar every Thursday at 3pm Central. We discuss supply, demand, weather and the charts. Sign Up Now
Walsh Trading, Inc. is registered as a Guaranteed Introducing Broker with the Commodity Futures Trading Commission and an NFA Member.
Futures and options trading involves substantial risk and is not suitable for all investors. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. The information contained on this site is the opinion of the writer or was obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
All information, communications, publications, and reports, including this specific material, used and distributed by Walsh Trading, Inc. (“WTI”) shall not be construed as a solicitation for entering into a derivatives transaction. WTI does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71.
Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
312 957 8103
888 391 7894 toll free
312 256 0109 fax
Walsh Trading
53 W Jackson Suite 750
Chicago, Il 60604