This market has been in a clear uptrend since January of 2016 (blue line). It is interesting to note that the 50-week moving average is at roughly $9.68 (green line) and the 20-week moving average is near $9.91 (red line). The market is currently almost $0.60 and $0.40 above these averages, respectively. The relative strength index (RSI), which measures money flow, is at 62.66 when a 70 reading is overbought territory. This market could continue higher in the near-term, but could be sharply lower by harvest barring any weather issues in the US.
Using short-dated new crop soybean options could be a worthwhile strategy. Here's how it works.
Short-dated options are based on new crop futures, but expire monthly. Both puts and calls are available. The benefit of using short-dated options is less time premium is involved. Our strategy involves two steps. First, to protect new crop Nov soybeans a normal duration put will be purchased. Since it is a long time before expiration, time premium is high. We chose the $10.20 strike put for a $0.62 1/2. Second, we will sell short-dated call options to finance this purchase. The next month to expire is March. The short-dated Nov soybean call option will expire on Feb. 24th. We chose to sell the $10.60 strike call for $0.12. If the Nov soybean market is below $10.60 on Feb 24, then the $0.12 is kept in your account. If above $10.60, then short Nov futures will be exercised into your account. Being short the Nov futures for nearly a dollar above the last 50-weeks average doesn't seem all that bad. Nor does keeping the $0.12 if the options expire worthless. In the event the options expire worthless, the strategy can be performed for the next expiration which would be April. The ultimate goal would be to eventually pay for the Nov put in full.
Feel free to contact Blackmore Commodities at 844-684-9199 or customerservice@blackmoregroupLLC.com with questions. Visit our website for more information at www.blackmorecommodities.com
*The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Please read our full disclosures and privacy policies.*