Recently, I had to get out of some Crude and Gold trades due to price moves and risks skyrocketing. Like all of you, I do NOT like losses. Yet they are as integral a part of trading as profits over time. The highly leveraged nature of these short option trades makes it very risky to stay in them. Over the next few months, it seems we’ll continue the trade wars. It seems more likely that the save-haven Gold buying might continue, oil price rises may be difficult to retain, and the risk to world commodity demand will be higher. This requires some adjustments to price outlooks.
So what does “the new normal” of the market look like? MORE UNCERTAINTY straight ahead. Will there be more FED rate cuts? how many? how much? when? —- all unknowns. The prospects for an extended trade war between USA/China are very high. Is there an economic global slowdown coming: unknown. We know the stocks markets abhor uncertainty and yet we have a lot of it to handle here over the short at least, and maybe much longer. Some believe that President Trump has an incentive to perhaps turn up the pressure on China with the election year coming. Depending on what/if this happens, it could spur more fears of world commodity demand suffering. Crude Oil: This fear and high supplies of crude might not support current prices.
Corn: Today at noon 12PM ET the long anticipated USDA’s World Ag Supply-Demand Estimates (WASDE) report is made public. This report reveals the results of a special field survey for the actual planted acres of the Corn and Soybeans. The USDA did NOT adjust corn planting acreage in the July 11th report to account for late and missed planting acreage due to the Spring flooding in the USA. They opted to take a special extra survey and the results will be made public in today’s report.
I’ve marked below in the yellow highlighted square on the right margin, that the planted acres may come in near 87.8 mm acres.
The old crop yield was 176.1 and in July’s report the yield was lowered to 166 bushels/acre. There may or may not be a yield adjustment in today’s report, so any revision downward from 166 will be a surprise. My aim is to sell CALLs on the DEC19 futures and so far, no reliable numbers on crop size have been available. I need those numbers in order to estimate a trading range for the DEC19 contract, then I will shop to sell CALLS at strikes above that range. Even with today’s expected planting reduction, their can be the expectations for a further yield reduction due to “yield drag” of the late plantings.
Gold:More gold buying will likely be sustained in the face of uncertainty. Interest rates being so low probably make gold look even more attractive in the face of risking a global downturn.
Volatility: With higher volatility in all the markets, options will be more expensive – this is usually good news for option sellers. However, this also means less certainty of pricing. Still, things get overdone and opportunities can be born.
This week: 1) USDA WASDE, report. Corn
2) Shopping to get back into Crude Oil short CALLs.
3) On pullbacks, I’ll shop Gold PUTs.
Comment: While having to exit trades recently to avoid very large losses was, as it always is – unpleasant. I remember all the times over the years when I substituted too much hope as a strategy and lost big time. It seems probable (we still don’t know) that once things settle down a bit -will “look like I did NOT need to exit those trades.” I will only know in hindsight, and once we know the outcome, myself – or any trader, will either look like a genius for exiting, or a goat for not hanging in. I call this the “Two G syndrome” – either genius or goat. In that moment, there always seems to be no middle ground. I have been both many times over the years. Another matter one considers when deciding whether or not to hold that riskier trade –is the consideration of draw downs, how much pressure (and money at risk) it might have taken to endure an uncertain storm. When you put your head on the pillow at night, you will know if you have made a proper decision. Some subscribers I know have very large accounts and are in a financial position to be able to endure a higher risk profile. There’s the old saying that “one should never play with scared money,” as the emotion can too easily overrule a calculated risk assessment of our momentary circumstances. The answers that work for us – as individuals — vary greatly. This is why there is never just one simple rule that works for all traders – and there never will be.
So this week, we try to determine whatever the term “new normal” might mean. Good luck to all. Thank you – Don
Don A. Singletary
“Experience is what we get when we didn’t get what we wanted.” – anonymous.
TastyWorks: $2,000 minimum to open account. Easy online application, free ACH money transfers. Here’s my affiliate link forTASTYWORKS. International Accounts for 70 countries available.
Futures trading is risky and not suitable for all investors.
The commentary and examples are for teaching purposes only and are not intended to be a trading or trade advisory service. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein on the web site and/or newsletter, are committed at your own risk, financial or otherwise. Trading with leverage could lead to greater loss than your initial deposit. Trade at your own risk. Investors and traders are responsible for their own investment/trading decisions including entries, exits, position, sizing and use of stops or lack thereof. This is not a trade advisory service and is for educational purposes only. The content on the pages here is believed to be reliable - but we cannot guarantee it.
Don A. Singletary is a teacher and writer. For 25 years he was a commodity risk management (hedge) consultant for major corporations. He is the author of Option Income Training Bulletin, the only such publication dedicated to teaching small/medium personal investors how to sell commodity options for a second income, a strategy traditionally used mostly by professional investors, the wealthy, and money managers.
While this website is for subscribers only, you can get full access with a free trial subscription. Also you may visit his blog with many trade examples and articles on this valuable strategy at: SellingCommodityOptions.com
Greetings: 12 August 2019 MONDAY
Recently, I had to get out of some Crude and Gold trades due to price moves and risks skyrocketing. Like all of you, I do NOT like losses. Yet they are as integral a part of trading as profits over time. The highly leveraged nature of these short option trades makes it very risky to stay in them. Over the next few months, it seems we’ll continue the trade wars. It seems more likely that the save-haven Gold buying might continue, oil price rises may be difficult to retain, and the risk to world commodity demand will be higher. This requires some adjustments to price outlooks.
So what does “the new normal” of the market look like? MORE UNCERTAINTY straight ahead. Will there be more FED rate cuts? how many? how much? when? —- all unknowns. The prospects for an extended trade war between USA/China are very high. Is there an economic global slowdown coming: unknown. We know the stocks markets abhor uncertainty and yet we have a lot of it to handle here over the short at least, and maybe much longer. Some believe that President Trump has an incentive to perhaps turn up the pressure on China with the election year coming. Depending on what/if this happens, it could spur more fears of world commodity demand suffering. Crude Oil: This fear and high supplies of crude might not support current prices.
Corn: Today at noon 12PM ET the long anticipated USDA’s World Ag Supply-Demand Estimates (WASDE) report is made public. This report reveals the results of a special field survey for the actual planted acres of the Corn and Soybeans. The USDA did NOT adjust corn planting acreage in the July 11th report to account for late and missed planting acreage due to the Spring flooding in the USA. They opted to take a special extra survey and the results will be made public in today’s report.
I’ve marked below in the yellow highlighted square on the right margin, that the planted acres may come in near 87.8 mm acres.
The old crop yield was 176.1 and in July’s report the yield was lowered to 166 bushels/acre. There may or may not be a yield adjustment in today’s report, so any revision downward from 166 will be a surprise. My aim is to sell CALLs on the DEC19 futures and so far, no reliable numbers on crop size have been available. I need those numbers in order to estimate a trading range for the DEC19 contract, then I will shop to sell CALLS at strikes above that range. Even with today’s expected planting reduction, their can be the expectations for a further yield reduction due to “yield drag” of the late plantings.
Gold: More gold buying will likely be sustained in the face of uncertainty. Interest rates being so low probably make gold look even more attractive in the face of risking a global downturn.
Volatility: With higher volatility in all the markets, options will be more expensive – this is usually good news for option sellers. However, this also means less certainty of pricing. Still, things get overdone and opportunities can be born.
This week:
1) USDA WASDE, report. Corn
2) Shopping to get back into Crude Oil short CALLs.
3) On pullbacks, I’ll shop Gold PUTs.
Comment: While having to exit trades recently to avoid very large losses was, as it always is – unpleasant. I remember all the times over the years when I substituted too much hope as a strategy and lost big time. It seems probable (we still don’t know) that once things settle down a bit -will “look like I did NOT need to exit those trades.” I will only know in hindsight, and once we know the outcome, myself – or any trader, will either look like a genius for exiting, or a goat for not hanging in. I call this the “Two G syndrome” – either genius or goat. In that moment, there always seems to be no middle ground. I have been both many times over the years. Another matter one considers when deciding whether or not to hold that riskier trade –is the consideration of draw downs, how much pressure (and money at risk) it might have taken to endure an uncertain storm. When you put your head on the pillow at night, you will know if you have made a proper decision. Some subscribers I know have very large accounts and are in a financial position to be able to endure a higher risk profile. There’s the old saying that “one should never play with scared money,” as the emotion can too easily overrule a calculated risk assessment of our momentary circumstances. The answers that work for us – as individuals — vary greatly. This is why there is never just one simple rule that works for all traders – and there never will be.
So this week, we try to determine whatever the term “new normal” might mean. Good luck to all. Thank you – Don
Don A. Singletary
“Experience is what we get when we didn’t get what we wanted.” – anonymous.
TastyWorks: $2,000 minimum to open account. Easy online application, free ACH money transfers. Here’s my affiliate link for TASTYWORKS. International Accounts for 70 countries available.
The commentary and examples are for teaching purposes only and are not intended to be a trading or trade advisory service. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein on the web site and/or newsletter, are committed at your own risk, financial or otherwise. Trading with leverage could lead to greater loss than your initial deposit. Trade at your own risk. Investors and traders are responsible for their own investment/trading decisions including entries, exits, position, sizing and use of stops or lack thereof. This is not a trade advisory service and is for educational purposes only. The content on the pages here is believed to be reliable - but we cannot guarantee it.