The DeCarley Perspective Trading Newsletter

December Corn Options

 

December corn strangles DeCarley Perspective

**There is substantial risk of loss in trading futures and options.

**Past performance is not indicative of future results

On the radar:

 

• Corn has been consolidating for weeks, will Friday's option expiration trigger a break-out?

 December corn futures chart

December Corn Options

Corn futures have been eerily quiet as of late, but we have a feeling the tranquility won't last. After all, thus far 2012 has been a rather eventful year for grain traders and we don't see any reason for things to change now. Those that have been short corn strangles have likely done very well in recent months. Nonetheless, sideways trade has left "cheap" option pricing int its path and this subtracts from the probability of successful option selling immensely. Those looking to sell premium in this market, might be better served waiting for an increase in price action and, therefore, potentially higher option prices before entering open ended positions.

Conversely, stagnant trade has resulted in relatively discounted option values. This provides an opportunity for long option traders to purchase lottery tickets ahead of the upcoming expiration of the September options. It is not unusual for quiet markets to see volatility prior and subsequent to expiration. Similarly, grain products have a habit of holding off on corrective trade until after the active month's options have expired. Accordingly, it is reasonable to expect some type of selling pressure early next week.

On the other hand, we are in the midst of a treacherous weather market in which any hint at another heat wave could lead to more speculative buying. Runaway trains are hard to stop, regardless of market fundamentals or logic. Because of this, it might be worthwhile to play both sides of the market.

An affordable and limited risk method of gaining exposure to the corn market is to purchase deep-out-of-the-money options. These should purely be looked at as lottery tickets in that they low and capped risk is attached to less than stellar odds of success. Nonetheless, if this truly is the calm before the storm, these lottery plays could pay off nicely.

Those looking to get involved in the grains with little stress, might look to buy the October 860 call for about 6 cents, or $300. On the put side of the strangle, traders might look to buy the October 750 put for about 6 cents, or $300. This trade has 33 days to expiration...and we've seen, a lot can happen in this time frame!

If you are enjoying this trial, Click here to open a trading account to work with DeCarley Trading and/or use the state of the art futures and options platforms available to our brokerage clients.

 

DeCarley Trading
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Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.

**Seasonality is already factored into current prices, any references to such does not indicate future market action.

There is substantial risk of loss in trading futures and options.

**There is substantial risk of loss in trading futures and options.** These recommendations are a solicitation for entering into derivatives transactions. All known news and events have already been factored into the price of the underlying derivatives discussed. From time to time persons affiliated with Zaner, or its associated companies, may have positions in recommended and other derivatives. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Seasonal tendencies are a composite of some of the more consistent commodity futures seasonals that have occurred over the past 15 or more years. There are usually underlying, fundamental circumstances that occur annually that tend to cause the futures markets to react in similar directional manner during a certain calendar year. While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing. Even if a seasonal tendency occurs in the future, it may not result in a profitable transaction as fees and the timing of the entry and liquidation may impact on the results. No representation is being made that any account has in the past, or will in the future, achieve profits using these recommendations. No representation is being made that price patterns will recur in the future. 

 

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