RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

In yesterday’s Corn Trading Strategies Blog, we discussed the market’s position deep within the middle-half bowels of the past quarter’s thus-far lateral range that, in the end, has to be approached as EITHER corrective/consolidative ahead of a resumption of the secular bull trend OR that of a massive peak/reversal environment.  The long-term momentum, sentiment and Elliott Wave considerations are the same for beans, so we won’t waste the time regurgitating these same elements.  Suffice it say that, in the daily log scale chart below, the market has identified tighter directional flexion/decision-making levels at 13.08 and 13.80, a short-term bear risk parameter at 14.18 and key long-term range boundaries and directional flexion/decision-making levels at 12.40 and 14.72.

However, as producers can’t afford not to be without downside hedge protection in the event tomorrow’s key crop report greases a slide that could be major in scope and end-users can’t afford not to be protected against a resumption of the secular bull trend, we discuss favorable but safe risk/reward hedge strategies below that are designed on the premise that this market will MOVE AWAY FROM the middle of the past quarter’s range as a result of tomorrow’s key crop report.

END-USER BULL HEDGE:  SHORT OCT 13.40 – 13.10 PUT SPREAD / LONG OCT 14.20 CALL COMBO

Given recent near-term support from the lower-$13-handle, this strategy involves selling the Oct 13.40 – 13.10 Put Spread for around 14-cents and buying the Oct 14.20 Calls around 17-cents for a net cost of about 3-cents.  This strategy provides:

  • a current net delta of +36%
  • favorable margins
  • a cost/risk of just 3-cents if the underlying Nov contract settles anywhere between 13.40 and 14.20 at expiration 43 days from now on 24-Sep
  • fixed, maximum risk/cost of 33-cents on ANY price collapse below 13.10
  • virtually unlimited, dollar-for-dollar upside hedge protection above its 14.23 upside breakeven point at expiration.

PRODUCER BEAR HEDGE:  SHORT SEP SHORT-DATED 13.50 – 13.80 CALL SPREAD / LONG SEP SHORT-DATED 13.10 PUT COMBO

Given near-term resistance from the 13.50-to-13.80-area, this strategy involves selling the Sep Short-Dated 13.50 – 13.80 Call Spread for around 10-3/4-cents and buying the Sep Short-Dated 13.10 Puts around 12-1/4-cents for a net cost of about 1/1-2-cents.  This strategy provides:

  • a current net delta of -47%
  • favorable margins
  • a cost/risk of just 1-1/2-cents if the underlying Nov contract settles anywhere between 13.10 and 13.50 at expiration 16 days from now on 27-Aug
  • fixed, maximum risk/cost of 31-1/2-cents on ANY price explosion above 13.80 (that will allow the producers cash position to continue to profit)
  • virtually unlimited, dollar-for-dollar downside hedge protection below its 13.08 downside breakeven point at expiration.

We acknowledge the Sep short-dated options’ limited life span of only 16 days.  But with tomorrow’s key crop report having the potential to ignite a major move either way, this strategy will either perform terrifically and provide the needed protection on a sharp sell-off OR expose limited risk on a sharp rally.  This strategy can easily be applied using Oct options, it will just cost more.

Please contact your RJO representative for updated bid/offer quotes on these strategies and good luck on tomorrow’s numbers.

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.