RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

Agricultural

Engage Key Crop Reports with Favorable R/R Corn Call Diagonal

Posted 10/09/2019 1:34PM CT | RJO Market Insights

We maintain a bullish policy heading into tomorrow’s key crop reports with a failure below at least 04-Oct’s 3.83 smaller-degree corrective low and short-term risk parameter required to even defer, let alone threaten our bullish count as discussed in yesterday’s Technical Blog.  Until this market weakens below at least 3.83 and preferably 09-Sep’s 3.52 low and key long-term risk parameter, we believe this market may be vulnerable to sharply higher prices straight away.

Revisiting our bull-hedge strategy for end-users discussed in 27-Sep’s Trading Strategies Blog just before 30-Sep’s key crop reports, the Short Nov 3.70 – 3.50 Put Spread / Long Nov 3.75 call Combo shown below was able to be established for about “even”.  As a result of continued gains in the underlying above this strategy’s 3.70 breakeven level, this strategy is now 20-cents in-the-money and will continue to provide unlimited, dollar-for-dollar upside hedge protection for end-users as long as the market continues higher.  A relapse below at least former 3.77-area resistance-turned-support in the underlying Dec contract is required to pare or neutralize this position.

BULL SPEC:  LONG OCT WEEK-2 4.05 / DEC 4.25 CALL DIAGONAL

For specs who might feel a little uneasy about initiating bullish exposure “up here”, 40-cents off of 09-Sep’s 3.52 low, we recommend buying the Oct Week-2 4.05 / Dec 4.25 Call Diagonal spread for “even” (each option trades around 3-1/2-cents).  This strategy provides:

  • a current net delta of +12%
  • 2.5:1 gamma ratio
  • negligible risk if we’re wrong on our bullish count and the contract tanks
  • profit potential of 20-cents on a sustained rally above 4.25.

As always with such long-gamma diagonal spreads, the only real risk is boring, lateral price action following a dud of a crop report.  In this case we assume the long Oct week-2 call option with greater time-decay risk will erode to zero, potentially leaving a naked short position in the Dec call that would expose infinite risk if left unmanaged.  But we never let the strategy get to that point.  If the market doesn’t “move” by mid-next-week, this entire spread should be covered for what should be a small loss.

Please contact your RJO representative for an updated bid/offer quote on this strategy.

RJO Market Insights

RJO Market Insights specializes in forward-thinking analysis, focused on potential market-moving events and dominant factors driving price discovery. Detailed fundamental and technical coverage across multiple commodity sectors is combined with objectively-constructed trade recommendations to provide an industry-leading product for R.J. O’Brien’s Institutional clients, commercial hedgers, introducing brokers and individual investors free of charge. Content is distributed in both text and audio formats, with specialized service offerings provided by account type.
For more information on RJO Market Insights, contact your broker or RJO representative.