14 January 2020 TUESDAY TRADE COMMENTARY/ newsletter

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Greetings:  TUESDAY 14 JAN 2020:

Closing Trades Today: 

  1.  I sold the 1800-strike MAR2020 Gold CALL for 1.40  ($140) last week on 7th JAN; Gold (APRIL FUTURES) was trading about $1597.  It had spiked due to the Mid East conflict.  I bought it back this morning – the MAR20 1800 CALL, a closing purchase at 0.30 ($30) for a profit of (140 – 30) = +$90 profit per option.  This morning the GCJ20 (April Gold Futures) is trading at $1549. note: the underlying futures is APRIL even though the option class is MAR.
  2. Back on 10th DEC, I sold the Crude Oil MAR2020 strangle, the 70C/45P for total of .28 ($280). I closed out the 45 PUT for a profit (see last week post on 7th JAN 2020).  Today, I closed out the 70-strike MAR20 CALLs with a closing purchase at a price of 0.06.  I had sold it for 0.14, so ($140 minus $60) = profit of $80 each.


Corn: I continue to hold my MAR20 short 365-strike PUT.  The underlying trading at 388.75 this morning and this option is trading bid/ask at:  .875 / 1.000  ($43.75/$50).   I sold 17 DEC2019 at 2.125 ($106.25.)

Comment on Corn position:  The WASDE report last Friday did post a reduction in inventory; there was an unexpected readjustment for the ‘ending stocks’ on the 2018/2019 crop and an increase in expected shipments for the 2019/2020 crop – which resulted in a net increase in inventory.  You can read the report at this link:

And here is the Kansas State University Supply-Demand/ Price chart with the JAN2020 numbers updated:

source: Kansas State Ag Dept website HERE
BTW, this KSU site is excellent for grain research and commentary (and it’s free.)

Comment on Crude Oil:  Closing the Crude 70-strike MAR20 CALL today has me out of crude oil trades for now. I am currently shopping to sell more strangles in the APR, MAY, JUN and will have information on that to post here soon.  If you want some practice, price each of those classes (APR, MAY, JUN) and use the strikes I still like for that time period of 70 CALLs and 45 PUTs.  Here’s a look at the APR20  70C/45P short strangle:

The margin requirement for this trade is about $1250 and the credit (.28) is $280, so the potential return (assuming no draw down) would be  280/1250 = about 22.4% and the APR20 class of options expire in 63 days from today.  The Prob OTM (probability of the options expiring worthless) is about 94%.  Of course, as we remember from so recently – we are always just a few bombs in the Mideast away from a very risky trade.  That 94% Prob. OTM is just the math from standard deviation computations and does not consider war, conflict, natural disasters, politics, and stock market movements.  It is important that you understand such things as a 22% return in 63 days doesn’t come without some risk.  If you can believe that whatever might happen would blow over as fast as this last threat, then a trade like this could be a consideration.

Look on this sites Resources pages for links to EIA  (US Government site for Energy complex.)  There are also links there for Ag TV, option expiration table, training videos on selling commodity options and more.

Comments: Another possibility, I always watch is for the stock market to have a (shall we say) a “deep correction” day or two, the price of Gold will pop up again and present opportunities to sell CALLS far above the money at increased rates of volatility – as what happened recently with the 1800-strike Gold CALL.

It is also time to start examining the grain options for this Spring.  I’ll be discussing some of that very soon also.  So for early 2020, we have Crude, Oil, Gold, Grains and maybe more.  I often get asked why I don’t also trade Silver options; my answer is simple.  If Gold weren’t there, I would be trading Silver options.  I trade the Gold instead of both because the liquidity, open interest, and daily volume of Gold has more efficient pricing than that of Silver.  Silver and Gold move very sympathetically, so it isn’t like trading one over the other has any real advantage (IMHO.)

The Phase One China deal in the news this week.  Should something happen to thwart an agreement, this could move some futures prices unexpectedly and provide some opportunity.   Even though the news will have good, great, and bad, reports on the agreement’s phase one (depending on one’s politics and view I suppose), any disruption of an immediate agreement would be a surprise (but maybe not a huge one!)

That’s it today.  Have a great week. – Don

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