Last March 2, 2016 this contract made the current 52-week low at $8.84 3/4 (left black circle). Soon after, the market rallied to the 52-week high. The Fibonacci retracement levels are drawn from this high to the lows hit in late August. After the sell off today, July soybeans are just above support at $10.30 1/4 provided by the 100-day moving average (MA). The next support level is at $10.24 3/4, which is the 50% Fibonacci retracement. Further down is the long-term trend line from the lows of last March. This comes in at about $10.20. The market will likely move lower, but a lot of support is between current prices and near-term lows at $10.10. A strategy to re-own on paper and take advantage of a spring rally is as follows.
A diagonal spread is a spread using different strike prices in different expirations. For this strategy, we will buy July calls and sell November calls to help finance. An at-the-money July 1040 call is at about 48 cents. The out-of-the-money November 1100 call is at about 33 cents. You would by the July and sell the November for a net cost of 15 cents. If the spring rally does occur, the July call will capture the value. In the event that November soybeans rally above $11.00 and stays there at expiration in late October, then a short November future is assigned at $11.00. If the market does not rally, then the 15 cents is lost. This strategy gives you unlimited upside on July soybeans and about 97 cents of upside on November soybeans at today's prices.
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