We don't need to go into a deep discussion of what 's driven prices of agricultural products for the past six months. There were forecasts of drought extending in South America, particularly in Brazil and Argentina, earlier this year. Let's leave it simply at demand. For this trade we are going to lean a little more on technical analysis.
Corn prices are up 5.3% since the beginning of the year, which is modest in comparison with the clear rockstar, soybeans, up 27.5% year-to-date relative underperformance is due to a recent 12% pullback from its June 17 pullback. The price seems to be stabilising near current levels of $390 and volume increasing.
Source: Saxo Bank
The trade set-up is conditional upon the price of corn moving above Friday's intraday high of $395. Today, Monday, the price of corn traded as high as $396.75 in the earlier session but has sinced retraced. Traders should confirm the break at the market close (options on CBOT close at 1:15 pm CST, or 8:15 pm CET)
Management and risk description
Allocate a percentage of your account value that you are comfortable risking. For instance 1% of $50,000 is $500.
Upon a close above $395:
Underlying: September corn (ZCU6) at $393.75
Buy 1 Sep 16 390 Call at 22
Sell 1 Sep 16 420 Call at 13
Net debit 9 x 50 or 450.
Breakeven at expiration: 399
Maximum gain at expiration: 21 x 50 = 1,050.
Maximum loss at expiration: 9 x 50 = 450.
Entry: MOC order ZCU6> 395.
Target: Price to trade above 420.
Time horizon: 20-30 days.
— Edited by John Acher
Non-independent investment research disclaimer applies. Read more