01 April 2019 MONDAY (afternoon) TRADE COMMENTARY

Gold:  Amazing how fast things can change.  The China economic numbers announced very positive for the world economy.  The USA news media full of stories about how the FED could or should lower interest rates by 50 basis points, and the DOW zooming up 200 points at the open this morning.  Obviously, the world hasn’t changed so drastically in the last 72 hours but the news cycle has.

With the FED now being ‘dovish’ the view is for little change of raising rates and more chance of falling interest rates ahead this year.  Lower interest rates normally portend higher gold prices and a lower $US Dollar.  My job as an option-seller is just to find a price range where prices probably won’t go.  I had to exit my AUG19 short strangle last week.  With the quick news cycles, I just did not want to take the risk of getting caught in a position of having to wait months to make back money that could have been lost quickly.

My loss was small, and now I must remember that my NEXT gold trade has nothing to do with my last gold trade.  Things seem to working out so that I can get back into a gold short strangle very soon.  Whatever happens over the next few months, there seems to be a lot of uncertainty – and that bodes well that even if gold prices go up – it would likely be a slightly higher price range, rather than some sudden “bullish” turn that could run prices up too far.

Surveys indicate that our most recent trades tend to effect our immediate trading far more than our other history of trading.  There is a part of our ‘learning brain’ that places our recent experience as a priority in past experiences – and weights it more heavily in our decision-making process.  Sometimes this can result is distorting our decisions; this manifests sometimes as what could be called ‘revenge trading’ – a compulsion to make back losses on a previous trade even though it has no statistical bearing on the new trade.

It bears repeating that there is a flaw in thinking that all of our losing trades are because of bad decisions or that we somehow failed – when in  fact, they usually happen because of unforeseeable circumstances.  Losing trades are a part of the business for all of us and how we handle them will determine if we are successful or not – over the long term.  Every day we make decisions, even not doing anything is a decision.  We must maintain our ability to adapt.

Corn: The Grain Stocks and Prospective Plantings reports held some surprises:  The planted acreage coming in for corn on the high side at 92.8 million acres, the average trade’s estimate was 92.3 million.  Most of the acreage increases were in the South and North Dakota (states) regions where soybean prices got so very, very low last year due to the US/China trade war.   The other surprise in the report was where March 1st corn stocks were posted at 8.605 billion bushels, 300 million bushels up from the previous numbers.  The reasons cited by USDA were reductions in feed usage and weaker ethanol demand.  My current short strangle DEC19  540 CALL and the 330 PUT are both far enough Out-of-the-money not to be effected in any significant way;  this only reinforces the workability of the very FOTM strikes. (FOTM = far out-of-the-money) strategy that we favor.

I would say this news in corn, while unexpected, doesn’t negate the possibility of a very different price outlook if/when there are significant buys by China of US Corn over the remainder of this year.  The USDA reports are not biased to the bearish side, their policy (methods) just do not  put in any numbers that remain undocumented (China buys, weather premium, etc.)  Gasoline stocks have been very high over the last two months and are now moving to a more normal pace, this could bring the ethanol production back up slowly over the next few months.  It is too early to say yet, but this “bearish tilt” to number could make selling some more PUT options a bit safer, due to the dropping prices at the end of last week.  Ditto for selling more CALL options, perhaps looking at strikes between 500 and 540 now.

Corn prices basis the DEC19 contact have rebounded about half of Friday’s losses with DEC19 at 10 AM Eastern time at 389.25  +4.50.

Here’s the link to the PDF of Friday’s USDA Prospective Planting report from Cornell’s website:
https://downloads.usda.library.cornell.edu/usda-esmis/files/x633f100h/1j92gg425/7m01bt33v/pspl0319.pdf

Here a link to an article from AgWeb on the grain report:
Too Much Grain Sinks Market: https://www.agweb.com/article/usda-reports-too-much-corn-sinks-markets/

Soybeans : Friday’s USDA report was neutral for soybeans.  Even though plantings were revised down to 84.62 million acres from the 89.2 million last year, it isn’t enough to change the very high stocks on hand.  Even if more rains cause late plantings for corn and shift some acreage to soybeans from corn, it likely won’t be enough to cause much change in the soybean price outlook, which remains very neutral to bearish for the new crop (not much change).  I want to sell soybean CALLs.  I’ve been watching the NOV19 1200 CALL but it is only trading at 2.625 today and I’d like to get more for it, so will wait a while longer and see what happens.

Crude Oil:  Crude has crept over the $60 price line lately and my short CALLs and PUTs in the two strangles (the 75/45 JUL10 and the 80/35 SEP19) are tolerating the market well.  I’m holding them steady and watching to sell more of them over time. 


Summary of My Positions:

Short strangle:
Short SEP19 Crude Oil 80-strike CALL for 0.17

Short SEP19 Crude Oil 35-strike PUT for 0.09  (total of 0.26 = $260)


This new Trade Origination button will take you back in time – to the post where the trade was originally placed, so you can review the chart, fundamentals, and the details of this trade’s selection.   This way you get much more than just the position listing. – DAS


Short Strangle
Short the JUL19 Crude Oil  75-strike CALL for 0.11 ($110)
Short the JUL19 Crude Oil  45-strike PUT for 0.18 ($180)
 (total 0.29 =$290 )


 Short Corn DEC19 540-strike CALL for 2.875 ($143.75)


Short the DEC19 Corn 330  for 2.0 cents ($100.)

Note: The DEC19 Corn 540C and 330P DEC19 options form a short strangle, but I list them separately because I entered each leg at on a different date (I ‘legged in’ to the short strangle.)


For simple illustrations, I post all my trades as quantity of one option, although I trade more of them usually.


 

That’s it for today.  I’ll be posting again either Tuesday or Wednesday this week and email notification will go out to you.  Good trading to all. – Don

Don A. Singletary

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