21 May 2019 – TUESDAY TRADE COMMENTARY

Greetings:

Today this is about primarily two things:
1) Corn
2) Taking Profits

Corn: The “headline” for corn traders this week is crop progress report.  The entire report is available  at this link from USDA via Cornell University: LINK cropProgress

https://downloads.usda.library.cornell.edu/usda-esmis/files/8336h188j/kp78gr86b/k0698h18c/prog2119.txt

There is a link on this website at the tab Resource Link Library see: Crop Progress Report listing then put “crop progress report” into the search on the linked page.

Here’s one of the main triggers that is driving the corn market prices UP, the crop progress report for May 19, 2019:

You can see the 49% report for May 19th, 2019 in crop planting progress versus 30% a week earlier but far behind the 80% average of recent years – and versus 78% last year.  (If you haven’t read yesterdays post for 20 May, you should read it as this is a follow up to that post.)

Later planting for corn reduces the yield; this effect is sometimes called a “yield drag.”  This is all about supply-demand of course. The historical data for previous years is available from NASS (National Ag Statistic Service.)  The planting delay is due to flood and rain delays.  In situations similar to this year’s, the planting delay also means fewer acres planted.  We know this because of the historical data from NASS.  The shorter growing season means lower yield.  The longer the delays in planting, the greater the yield drag.   Obviously, our role is to try to sell some DEC19 CALL options at the peak prices which are likely to happen soon. I discuss this subject more -in the video below:

Taking Profits: As you know, a major part of the purpose at this website-newsletter is to help readers learn more about selling commodity options.  If you have a few months of experience here, you know that taking profits is not an exact science and it  requires  good money-management decisions by traders.

At present, I hold several positions just “begging me” to take profits – and I plan to do that soon.  Here they are:

Short Crude Oil JUL19 50 PUT     Sold at 0.15, now trading at 0.03.
Short Crude Oil JUL19 75 CALL   Sold at 0.11, now trading at 0.04.
Short Gold AUG19 1450 CALL      Sold at 1.00, now trading at 0.30

Just so you know: Most traders have a tendency, especially when taking a profit to put in an order just slightly better, a tick or two away from the current trading price.  My comment on this is:  The odds of the trade actually getting an advantage is often just 50/50 chance.  Sometimes, this entertaining habit can be costly.  You will rarely feel badly by snapping up a profit –  but to give unrealized profits back to the market can be very discouraging.  It happens enough without a trader “volunteering” to have it happen.

There are two more positions with profits that are less profitable but still I do not want to give the profit they have back to the market.  I might wait on on these two a bit longer than the above list.

Short Gold SEP19 1160 PUT         Sold at 0.90, now trading at 0.50
Short GoldSEP19 1500 CALL       Sold at0.70, now trading at .50

What will you do?  I know plenty of traders that automatically take profits on short options when they reach 50%.  My opinion is not to do that.  While it sounds very neat and orderly, in selling commodity options I think a great deal of the time that would be too soon.  Perhaps not in stock-option trading.  I often will allow some of  my trades to exceed the “200% rule of thumb” and I usually regret it, but there are times when options with profits are so far OTM, I am very comfortable allowing short options to give up a little more time-value.  When they are close to the strike, NOT so much – I take the money and run!  Ultimately, the decision depends on a trader’s risk tolerance and account size.  Until you find a pattern that suits you personally, it might be best to err on the cautious side.  As you get more comfortable with a specific commodity and more familiar with how it trades – these decisions get much easier.

Soybeans: Soybeans are also way behind on planting progress.  I’m short the NOV19 1100 and the 1200 strikes but the deltas are so low on these, the adverse effect is small so far. For example:  NOV19 beans are trading 871 and the 1200 CALL is up +.375 cents.  However  the 1100 CALL I sold at 3.0 cents is up 1.125 today.  I am comfortable holding both these short CALLs right now.  The soybean stocks, as we have discussed here for months – are very high, historically high and even if the crop yield is down, there will still be huge stocks of the bean out there.  Remember that soybean sales to the USA’s very largest customer, China, were off 40% this year – and prospects of being able to sell them this year are gone and the outlook is bleak for next season, depending on how the tariff / trade talks go.  Of course, I pay attention – but for now I do not find it worrisome to continue with these positions.

Crude: There have so many reasons that crude prices could rise (Middle East tensions, etc.) yet they have not.  I do think taking some profit here (as mentioned above) is warranted, and then I’ll go option-shopping to sell more strikes (and strangles) even farther OTM.  Remember the USA is on track to pump 12.5 million barrels a week this year and I don’t at present see any long term indicators that prices would suddenly spring higher.  That said, I won’t mind taking some profits here and getting strike farther OTM.  I plan to do this very soon now.

Closing comment: Patience is key here.  It is unlikely I will be able to peg the exact top of the corn market – and though it is a wonderful goal, realistically I can get close but rarely pick the top.  The increase IV% will make up some for not being able to pick the exact top and that’s ok.  Sometimes all you can do is all you can do – and it’s plenty.

Have a great week – Don

Don A. Singletary

 

 

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