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The grain complex went exactly to were it was supposed to and there was a sell
signal yesterday to give a short term retracement trade to the down side. If one
didn't want to take a trade against what they perceived was the market direction,
they could have exited and waited for an entry to the next rally. There is still
being harbored, by some, the illusion of beans in the teens and the risk all
attitude to get there. The old adage still holds true. " the elephant eats you
in one bite, you eat the elephant a bite at a time".
All those trading the grains that made disparaging remarks about using options
as a safety net are now looking for some reason to justify not having used them.
If you always worry about how much you can lose and take precautions to counter
that 3% factor, the profits will take of themselves. Have a good week end. Ira.
I4Lothian@xxxxxxx wrote:
> If you are long corn or soybeans and want to exit, but the markets are locked
> limit down, you might want to look at using the in the money Sep options
> which expire in a week to get neutral or spread the market.
>
> For example, if you are long the November soybeans and want to sell, buy the
> Sep soybean 475 put. It is trading near 31 1/2 cents, and the Sep 475 call
> is trading near 1 1/2 as I write this. That means Sep beans are trading at
> about 445-. You are essentially selling the Sep beans at 445- for the cost
> of buying the time value of the 475 call.
>
> However, the August beans are trading still trading, so you can use them to
> exit a soybean position too. Sell one contract of August Soybeans for every
> one of November you want to exit. You can then immediately buy equal numbers
> of August contracts and sell November contracts on a spread order. Make
> sure this is done as a spread on one order. That will liquidate your
> November position.
>
> There is no August Corn, so you need to use the options to exit. Normally
> you could use synthethic futures (buying an at the money put and selling the
> same strike price call) to exit futures positions which are limit down.
> However, since the September Corn options only have one week to go this may
> be a more economical and manageable way to exit futures positions. I would
> suggest buying the September corn 220 puts. The 210 calls are trading about 1
> 1/2 cents, so that is your time value cost for getting neutral this way.
>
> If you are afraid of the spread risk between Sep and Dec corn, you can always
> just buy Dec and sell Sep so you end up in a position long Sep corn and long
> in the money puts. You would end up with a synthetic call position.
>
> Regards,
>
> John J. Lothian
>
> Disclosure: Futures trading involves financial risk, lots of it!
>
> Disclosure: John J. Lothian is the President of the Electronic Trading
> Division of The Price Futures Group, Inc., an Introducing Broker.
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