Greetings: Monday July 15, 2019 Trade Commentary
Corn: The USDA’s WASDE report on Thursday last week went as expected, no major changes. However, after that report Corn prices resumed a move upward. I infer the trade has now digested recent crop reports and fully expects more production cuts in the new crop going forward. To be clear, WASDE this time had no surprises, but as previous stated: “the USDA is taking a special survey on acres planted; it is THOSE results that won’t be out until the August WASDE report.” The price rise currently in play can be attributed to the expectation that the AUG WASDE will confirm a lower planted acreage number, a bullish development. The price rise now, is anticipating this. While I expect corn prices to rise more, it is rarely ever a straight line. The COT indicates there are a lot of short traders; on more rise – there may be short covering. I will continue to follow this action here. USDA’s current average ‘to farm’ prices for the season is still $3.80 since they haven’t adjusted acres planted yet, so this should go up and it could be up a lot after the August WASDE report, some think maybe $4.50 or more. Some analysts think with yield dropping down to about 160 to 163, that the DEC19 Corn Futures would be in the 500 to 550 range in the coming weeks. Also there is expected to be a weather premium as hot and dryer weather is forecast as the corn heads into pollination time.
As you know the timing of any trade is key in its success: Here’s a few numbers. The AUGUST WASDE comes out Monday, August 12, 2019. The corn SEP19 option class expires on August 23, only 11 days later. It seems the AUG WASDE will be bullish, perhaps its a good time to shop selling SEP19 Corn PUTS (that expire on Aug. 23rd.) I be shopping for that this week. Still, over the longer term, whenever it seems that IV% peaks and DEC19 Corn prices are high, I plan to sell far above the money CALLs on the DEC19 contract. The strategy here is not so much to try and guess the market, but to plan trades, so-to-speak, AFTER facts become known. In picking both SEP19 PUTS and DEC19 CALLs to sell, it will be a search for the most FAR OTM (FOTM) strikes that have enough premium to make it worth it.
Crude Oil: The vice-chairman of the USA Federal Reserve stated, “..the economy is in a good place,” as the DJIA topped at 27,332 at Friday’s close, up 243.95 points. The FED’s view seems to be that the economy is robust and that there are rate cuts ahead. It seems, the FED is thinking that, as insurance, the rate cuts are ahead. Nothing really new this week in terms of the China/ USA trade negotiations. The next move in Crude oil will be dependent on global demand. Crude closed just over the psychological $60 a barrel mark on Friday. My aim this week is to sell PUTs to form the bottom leg of a short strangle with my current short DEC19 90-strike CALL. And I am still shopping to sell more short strangles in early calendar 2020 option classes. Keep in mind, part of what just had Crude Oil closing over $60 a barrel probably had to do with the closing of oil rigs in the Gulf due to the hurricane. So before selling PUTs, I may give it a day or two to see if prices decline post-weather threats.
Gold: The metal’s DEC19 contract closed at $1429, + $10.60 for the day on Friday. Option implied volatility (IV%) is high and I’ll be shopping strikes of PUTs to sell to form a bottom leg of short strangles here to go with my DEC19 1800-strike CALL. I’ll also start shopping calendar 2020 classes of Gold options. It’s never to early to start watching them in preparation.
Soybeans: Some dry weather and reporting of poor crop conditions are pushing up soybean prices. All of the beans that the USA did NOT sell to China go into the stockpiles and hinder prices, so this push up in bean prices could be short-lived. My hope is that IV% (implied volatility) rises, the weather premium drive prices UP —- and there might be a great opportunity to sell some FOTM (far OTM) CALLs. Just so you know, soybeans have always been one of the more volatile priced crops, but the loss of market share to the USA’s biggest customer (China) could diminish some of that volatility. Some ag experts say it might take at least 5 or 6 years to get that market share back, if it can be done at all. I suggest reading the WASDE numbers of both USA and world use and stocks on the beans, to become more aware of these developments. Corn seems to be making all the headlines lately, but bean opportunities are there too.
That’s it for today. Good trading to all this week. -Don
If you have any questions or comments, or ideas for a training video or article – I’m always glad to hear from you. Don@WriteThisDown.com
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