On Demand

Grains: Protect Both Sides With A Soy Strangle

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The USDA will be releasing two monthly reports on soybeans in June, with one released Wednesday and the other at month end which is a monster in terms of influence as it shows planted acreage numbers.

Stock and index following funds have made a killing this year buying old crop soybeans and selling new crop beans. The marketing year for beans is September 1. Recent price action in the spot months prior to June saw huge price discrepancies between spot months and forward contracts, most notably the September and November futures.
Currently the July ‘14 is the front month contract and it enjoys almost a $2 premium to September and at one point last week, a $2.75 premium to November. Old crop beans are being bid up due to ending stocks at historic lows amid strong demand for both old crop and new crop soybeans from China and other Asian neighbors among others. Talk of old crop rationing is still in the market and funds are notorious for fearing bullish USDA reports.

The Commitment of Traders report the last three months has shown a huge build-up of long positions in beans, although there has been some washout or profit taking the last few weeks. July rolls off the board by month’s end leaving the August contract as the last contract before the new marketing year begins. Once these government reports are out of the way, weather and its effect on the bean crop becomes the primary pricing source for new crop beans, but an all-time low number for ending stocks off the next two government reports could send the August contract trading near the $15.00 handle, similar to what happened to the previous May and July contracts. 

The question going forward is will the funds go to the well one more time during the summer growing season and play old crop, new crop, and bid up old crop beans to 15.00 and beyond? Or do significant planted acreage, agreeable growing season weather, and sizable global supply oil oilseeds finally take hold and drive August beans lower.

Those interested in playing be protected on both sides of the market and have positions on both sides of the market. I therefore suggest buying the August Soybean 1320 put and selling the August 1220 put against it while simultaneously buying the August Soybean 1500 call and selling the August Soybeans 1600 call for 15 cents or in cash value, a $750.00 cost. The strategy is called an Iron Condor and if need be here one can adjust the strikes on the trade to achieve a lesser risk. The risk on the trade is the price paid for the spread plus all commissions and fees.

Webinar

Walsh Trading’s Senior Grain analyst Tim Hannagan hosts a free grain webinar each Thursday at 3:00 pm central time. Tim has been ranked the #1 grain analyst in the United States per Reuters and Bloomberg for his most accurate price predictions for soybeans and corn in the years 2011 and 2012. Link for this week’s webinar is below. If you cannot attend live, a recording will be sent to your email upon signup.

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.

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edjaworska1: Grains: Protect Both Sides With A Soy Strangle http://t.co/RPrQXOU2UQ via @TraderPlanet
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About the Author

Sean Lusk is a registered commodity broker and Director of the Commercial Hedging Division of Walsh Trading in Chicago.  Reach Lusk via e-mail here.

 He started in the business as a runner on the trading floor during summer breaks from college in 1993. Upon his graduation from Southern Illinois University at Carbondale in 1996, Lusk began his career on the trading floor of the Chicago Mercantile Exchange (CME). Overseeing billions of dollars of transactions working as a clerk in the Eurodollar pit, Sean took the next step and became a floor broker and member of the CME in 2003. He handled customer orders for banks and investment houses from all over the world from inside the Libor pit at the CME.

 Now, at Walsh Trading, he utilizes his experience in the marketplace and his professional client service skills to aid and assist customers in their trading endeavors.  Contact Lusk to be added to his free daily and weekly market commentaries focusing on both the Precious Metals and Agricultural Markets along with related market activity. He is widely quoted in the media including Futures Magazine, Reuters, Forbes, Kitco, Nikkei Press, and CCTV.com

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