Commentary
Corn, soybean and wheat futures held in tight trading ranges while swinging to both side of unchanged during the day session. However, by the close, corn futures lost 4 cents, soybeans were 7 cents lower while wheat futures were 7 cents lower. Front-month crude oil futures are around $1 higher, and the U.S. dollar index is more than 62.0 points lower by the close. It was a yawn fest that is sometimes indicative for holiday markets. Yesterday it was reported by USDA that weak export demand was on display again for corn. US corn inspections were again down significantly from the same week a year ago. At 495K metric tons last week, puts the lag to last year expands to 2.8 million metric tons. The market is in great doubt about the size of the China’s buying program with the US. Unlike soybeans, the corn sales with China are about half of what was expected. There’s a lot of noise that it could take 6 weeks of absolutely stellar sales to even approach the commitments that would put China back on track with the sizable exports projected by the USDA. With that in mind consider the following trade.
Trade Ideas
Futures-N/A
Options-Buy the July Corn 23 620 put and sell the Dec 23 7.00 Corn call for even money. Underlying futures for both contracts per todays settle, July 23 corn-6.53. December 23 Corn-6.08. Currently 45 cent inversion.
Risk/Reward
Futures-N/A
Options-Unlimited risk here with this strategy. We are naked a short option call that expires over a year from now. The strategy is geared for the corn producer who is putting their 2022 crops in the bin post-harvest, while selling calls in new crop corn at 7.00 to finance the cost of the put, which acts as protection if old crop corn prices fall out of bed. If filled for even money the cost to entry is zero dollars, plus commissions and fees. There is unlimited risk here.
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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.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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