As we officially closed the books on summer this week, I think back on how I spent my time. I was fortunate enough to spend some time on the water in the Midwest. The weather was pretty good for most of the season, just a few patches of high heat, and it never real felt stifling. One other thing that real never spiked was the price of gas over the summer. That is a pleasant memory.

Crude oil didn’t make any big moves to the upside over the summer that we often see happen. The contract made a few brief visits over $50.00, but was never able to stay there for more than a few sessions. Supply beat demand this summer, even forcing crude to break the $40 level in August.
Even with a draw down in supply of over six million barrels this week, crude still looks a bit range bound. Since September 1, crude has traded between $43 and $46 in the futures market. I am looking for that trend to continue. One way to trade a range bound market is with an options strangle.

I am going to go short term in this trade using weekly options. I am looking to sell the October Week 1 4900 call along with the October Week 1 4000 put at 45 points ($450.00) or better. These options will expire on 10/7/16, so we are about two weeks from expiration. Risk on this trade is unlimited, so make sure it is suited for your account. I am setting an initial exit target at 10 points. Look for decay to kick in about 6 days from expiration.

For those interested Walsh Trading is holding our weekly grain webinar Thursday September 21st at 3:00 PM Central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.

John Weyer
Director of Commercial Hedging
Walsh Trading Inc.,
jweyer@walshtrading.com

RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.