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Post by GrainTrader on Aug 18, 2012 9:55:33 GMT -5
I'm looking for ideas on a strategy to reown corn i'm going to sell this fall and would typically hold over into next year. I carry GRIP HRO crop ins. so i'll be getting my check, (if there is any hopefully) next spring. so thats one of the reasons i'm going to sell everything i have off of the combine. also i'm afraid of aflatoxin (sp). there currently isn't any carry in the market for next year as of now so i'd rather sell my physical for tax purposes and they try to capture a summer demand ration price run as long as we don't try to plant 100 million acres of corn next year.......
anyways...... what is anyone doing to protect these healthy prices on 13 new crop and any strategys to try and leave the top open to a reasonable level for a july contract delivery time frame?
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Post by Dave-ECIA on Aug 19, 2012 11:51:40 GMT -5
That's a lot of questions at once, want to narrow it down a little??
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Post by GrainTrader on Aug 19, 2012 18:57:56 GMT -5
I'm going to sell all my physical off the combine this fall, but i'd like to re-own some corn to try to capture some summer ration/demand runup. does anyone have a put/call strategy to try and accomplish this?
also like to try to do the same for 2013 fall delivery corn. set a floor and try to capture any run up in it.
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Post by Dave-ECIA on Aug 20, 2012 8:52:23 GMT -5
What has typically worked, and I do this with soybeans, forward contract the physical, deliver at harvest and re-own contracts (not puts or calls) when I determine the harvest low is in. I'll use March or May as the contract month. There have been a few years that the harvest low has come in prior to my harvest and I have not waited until I actually deliver my bushels before I buy back the bushels. In effect, I'm holding double the bushels for a short time, physical and paper.
If you aren't comfortable with the risk associated with the actual contracts, they I'd buy at the money calls. Calls will limit your downside risk to the premium paid. In other words, you will know going in the maximum amount of loss you could incur. The downside is that calls don't usually move penny for penny with the contract price so the March contract might move up 50 cents and the call only increases 35 cents in value.
To tweak this to suit your needs, I might still use the March contract as my first call purchase, then roll those to september prior to expiration of the March. Two things will happen. The first market move will be prior to spring while they attempt to buy corn acres, then it moves on to a weather market. If you go straight out to September, you would likely miss the market trying to buy acres. Using a March, roll to September strategy, you stand a better chance of capturing both moves.
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Post by GrainTrader on Aug 20, 2012 9:05:27 GMT -5
I appreciate/like the advise on using the March and rolling to september...
I understand markets pretty well as a whole, the technicals, and fundamentals. but just can't seem to grasp puts/calls that well....
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Post by wheatfarmer on Aug 20, 2012 9:13:33 GMT -5
Dave, one thing I don't understand, if you bought the Sept call, can you not sell early on a spring move up? You will be needing to buy calls to get back in for benefit of a weather rally or use that period to buy forward contracts. This should still capture both potential moves up, correct?
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Post by Dave-ECIA on Aug 20, 2012 12:37:21 GMT -5
Dave, one thing I don't understand, if you bought the Sept call, can you not sell early on a spring move up? You will be needing to buy calls to get back in for benefit of a weather rally or use that period to buy forward contracts. This should still capture both potential moves up, correct? You could capture both moves with a Sept call. I guess I've looked at the March/Sept roll as a way to give myself two chances at a rally. If the market is soft as the March calls go off, I can stand on the sideline and wait for a decline then jump on the September. In the end, both ways probably work. Another thing to consider is that call pricing has a bit of volatility built in if bought so far out, the September calls might be artificially inflated and lessen the gain. If you buy the months that are closer, they don't have quite the price premium built in. |
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Post by wheatfarmer on Aug 20, 2012 13:36:10 GMT -5
Question, if I buy a Sept call, can I sell the Sept call early, like in March, and if I can, is there some formula that gives a person insight to what profit is at that point, since it is not penny for penny?
I think I got this all digested and ready to try, but I feel I am missing something as it cannot be as easy as it seems. I do realize I stand to loose the purchase price of the call or put.
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Post by 420 on Aug 20, 2012 19:42:33 GMT -5
He is right about buying the March. You can buy or sell anytime. You will know exactly what you make you buy or sell on a bid -offer system so you can put a price on it or sell it at the market ,ie, what is offered
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Post by wheatfarmer on Aug 20, 2012 21:45:29 GMT -5
Thanks everyone for the answers. I'll try to absorb more if there is anything else you like to add.
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Post by 420 on Aug 21, 2012 10:22:51 GMT -5
Ask questions, I will try to answer, it is simple once you get the hang of it.
Options give you a limit on what you loose,but they also have negatives, the first being time value- the further out you buy-say spt vs mar the more it costs because you have more time.
On beans I would stay with jan,mar may july or nov,depending on what you want to do.
To get planting, use may, for summer rallys jul,for harvest nov, keep in mind all months expire the end of the previous month, for example,March contract expires the end of feb.
Also,most options expire worthless, true hedges should be bought or sold as futures,but margin calls can be expensive,you need a good banker.
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Post by wheatfarmer on Aug 21, 2012 13:47:27 GMT -5
Learned something again. I thought options expired by the 15th of the previous month. I would be plenty early then.
The time value of money is what gets me concerned, or maybe confused. Is there a way to have some idea, i.e. formula of how that works.
My thought is I would like to floor unsold crop with a put after harvest. I also would like to take the cap off of forward contracted crop by using a call in case of a runup before harvest. Looking to make these purchases outside the money and costing maybe $0.50 to $1.00/bushel.
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Post by 420 on Aug 22, 2012 9:52:13 GMT -5
Check with your broker, I know futures are the end of the month-options may br different.
Well,on the time value,there could be a formula,I dont know it, it is more what the market calls for, right now the markets are inverted farther out-the price is actually lower in the out months- this means we have short supplies,they want it NOW.
When we look at may vs jul beans we see that july is acctually 25 cents lower than may,this negates your time value situation.
When I looked this am may beans were 15.29 a 16.20 call is 94.7 cents
jul beans were 15.04 a 16.00 call is 99 cents
Pretty much the same protection for the same money.
To make it cheaper you have to go to a higher cbot price which means a bigger rally to pay you off.
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Post by wheatfarmer on Aug 22, 2012 10:00:59 GMT -5
Thanks for the insight. I feel I am as ready as I'll ever be to try to pick up, or lose, a few bucks.
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Post by Dave-ECIA on Aug 22, 2012 13:50:36 GMT -5
Generally, options expire the last week of the month prior to the contract month. For example, September soybean options expire on Friday, August 24th.
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