post market analysis for xau & jpyHello i gave a breakdown oif the trending states of usdjpy and xauusd and what to expect from the upcoming week. Give a like and comment if you agree or found this video helpful!
ZC1! trade ideas
Momentum Trading In Agricultural CommoditiesMomentum trading, a strategy as old as the markets themselves, has found fertile ground in the sprawling fields of agricultural commodities.
As the seasons change, so do the prices of wheat, corn, soybeans, and other staples, tracing patterns as predictable as the migration of birds or the spring blossom.
This paper delves into these seasonal trends, uncovering how they can serve as reliable signals for astute investors looking to harness the power of momentum trading.
SEASONAL TRENDS IN AGRICULTURAL COMMODITIES
Mint Finance has previously highlighted some of these seasonal trends in Corn and Soybean in detail previously
In short, seasonal cycles in crop performance are linked to crop harvest cycles. Pre-harvest, inventory drawdowns tend to drive price higher while post-harvest, a glut of inventory tends to drive prices lower.
Corn
Corn prices start declining in June following the harvest in China (second largest corn producer) and Brazil (third largest corn producer). Prices reach their lowest in October, coinciding with the harvest in the US.
Over the past five years, corn prices have increased in the first half of the year before declining sharply in late June. In 2024, indexed price performance shows prices sharply lagging the seasonal trend as we approach the date on which prices generally declined the last five years.
Wheat
Wheat seasonality is less pronounced than other agri-commodities due to its relatively global distribution. Still, wheat prices generally rise during the first part of the year before declining in late June as all the major producers - China, Indian, EU, Russia, and US harvest crops during this period.
This year, wheat prices started the year off on a bearish note. After bottoming in early-March, prices started to rise sharply peaking in late-May. Mint Finance covered some of the factors behind this rally in a previous paper (Extreme Weather Sends Wheat Prices Surging). Prices have started to normalize in June, a few weeks before the seasonal price decline generally begins.
Soybean
Soybean prices generally rise during the first part of the year. In late-June, as the Brazil harvest reaches its peak, prices decline sharply. Prices remain subdued until September when the US crop is harvested.
This year, prices have sharply lagged their seasonal performance. Despite the rally in early-May driven by flooding in Brazil, prices remain lower than their level at the start of 2024. Moreover, the rally following the flood-driven rally has retraced a few weeks before the seasonal price decline generally takes place.
MOMENTUM TRADING IN AGRICULUTAL COMMODITIES
Investors can execute momentum trading strategies by leveraging these seasonal trends. In this context, momentum trading strategy refers to a relatively simple trading strategy where investors either buy or sell a futures contract at the start of the month based on the seasonal price performance during that month.
For instance, if seasonal trends show that June generally results in a price decline, the strategy would consist of going short on the commodity at the start of June and closing the position at the end of the month.
Although, at face value, this strategy may seem overly simplistic, its return and accuracy are surprisingly high.
The simulations are based on a position in the front-month futures, consisting of one contract of the agricultural commodity, opened at the beginning of the month and closed at the end.
Corn
For Corn, running the momentum trading strategy would have yielded average annual returns of USD 8,500 per year over the past five years (2019-2023). Crucially, performance of this strategy in 2024 is sharply lower as it would yield total PnL of just USD 63 this year.
Wheat
Similarly, for wheat, this strategy returned an average PnL of 4,650 per year during 2019-2023. So far in 2024, this strategy would have yielded USD 6,600 in wheat futures in 2024.
Soybean
In Soybean futures, momentum trading would have been the most successful over the past five years. This strategy would have yielded an average of USD 13,600 per year between 2019 and 2023. However, in 2024, this strategy would not have been successful as it would have resulted in a loss of USD 8,700 so far.
SUMMARY AND 2024 PERFORMANCE
It is clear that although this strategy is successful on a long timeframe, it is not necessarily profitable each month. For instance, the Soybean momentum trading strategy would have resulted in a loss in 2024 while Corn momentum trading strategy would have resulted in flat returns.
The reason behind this divergence from seasonal trend is clear when comparing the seasonal price performance charts at the start of the paper. Fundamental factors can result in broad-based trends throughout the year which can skew returns. For instance, as Soybean prices have been declining for most of 2024, a long position would have resulted in a loss regardless of seasonal trends.
As such, it is crucial to supplement this strategy using fundamental inputs on what the long-term price trend for the crop is. For a crop which is in a down-cycle, a long position would not make sense and vice versa.
In the near-term, all three crop’s prices tend to decline during July based on seasonal trends. However, the outlook for corn is most bearish. The latest WASDE report , suggested that USDA expects global corn production in marketing year 2024-2025 to reach 1,220.5 million metric tons compared to a forecast of 1,219.93 million MT last month. The increase in production comes from forecast for higher output from Ukraine and Zambia more than offsetting the decline in Russia.
Moreover, USDA forecasts a season average price of USD 4.4 per bushel which is lower than the current futures price of USD 4.57. Asset managers are also shifting their view on corn prices bearish once again as COT report showed asset managers increasing net short positioning last week.
Both fundamental and seasonal factors support a price decline in corn over the next month. However, seasonal trends are not exact. Particularly in 2024, seasonal trends have underperformed their usual returns from the last five years.
Investors can opt to use options instead of futures to express the same view of weakening prices. Options provide fixed downside risk and require only an upfront premium, avoiding the need to manage margins as futures prices fluctuate.
A long put position in CME corn options expiring on August 23 (ZCU24) can be used to gain downside exposure.
CME Corn puts are relatively cheaper compared to calls. Moreover, options IV (measured by the CVOL index) is lower compared to the peaks seen during the same time last year. An options position would benefit from both falling prices and rising IV.
Source: CVOL
A long put options position on corn futures presents fixed downside of USD 464 (USc 9.29 x 5000/100) and unlimited upside. A strike price of USc 430/bushel represents delta of -0.29. This position would break-even at USc 420/bushel.
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
DISCLAIMER
This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services.
Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
Corn Has Begun Wave 5 of a Leading Diagonal
It appears that corn has officially begun wave 5 of a leading diagonal. A fifth in a diagonal should generally take the form of a zigzag. Prechter, however, has noted that fifth waves in leading diagonals often appear to be impulses, so we might be able to count five waves up instead of three.
corn futures short short trade corn futures 15 min in an uptrend
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Corn Futures Hold Steady Ahead of This Week's USDA Report
Corn
Technicals (July)
July corn futures had a bit of a wonky trade last week, falling under heavy pressure in the first half but staging an impressive rally on Thursday to negate those losses, only to fall flat on Friday against our pivot pocket from 448-451. This pocket will be the first hurdle for the Bulls to overcome in this week's trade, representing previously important price points as well as the 50 (red line on chart) and 100 (blue line on chart) day moving averages. If the Bulls can chew through and close above this pocket it could spark another wave of short covering into Wednesday's USDA report. The next upside target comes in from 460 1/4-163 1/2.
Friday's Commitment of Traders report showed (as assumed) Funds were heavy sellers through June 4th, selling roughly 80k futures and options contracts, expanding their net short position to 212,706. 69.5k of that was on the short side while just about 9.7k of that was long liquidation.
Bias: Neutral/Bullish
Resistance: 460 1/4-463 1/2***
Pivot: 448-451
Support: 444 1/4**, 433-436****
Check out CME Group real-time data plans available on TradingView here: www.tradingview.com
Disclaimers:
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
Options Blueprint Series: Cost Efficient Skip Strike ButterflyUnderstanding Skip Strike Butterfly
The Skip Strike Butterfly strategy is a unique and cost-effective options trading strategy that builds upon the traditional butterfly spread. This strategy involves buying and selling options at different strike prices to create a position with limited risk and potential for profit. Unlike the traditional butterfly spread, the Skip Strike Butterfly "skips" a strike price, which reduces the overall cost of the trade while maintaining a similar payoff profile.
Benefits:
Cost Efficiency: Lower upfront cost compared to traditional butterfly spreads.
Limited Risk: The maximum risk is limited to the net premium paid for the strategy.
Profit Potential: Potential for significant returns if the underlying asset moves within the expected range.
Understanding the mechanics of the Skip Strike Butterfly strategy can provide traders with a versatile tool for navigating market conditions when trading Corn Futures. This strategy allows traders to participate in market movements with a well-defined risk and reward profile, making it an attractive option for those looking to optimize their trading costs.
Strategy Setup
Setting up the Skip Strike Butterfly strategy for Corn Futures involves selecting the appropriate strike prices and expiration dates. Here, we detail the steps to configure this strategy effectively.
Steps to Set Up the Skip Strike Butterfly:
1. Select the Expiration Date:
Choose an expiration date that aligns with your market outlook and trading plan. Ensure you select an expiration that provides enough time for the expected price movement to occur.
2. Determine the Strike Prices:
Identify the current price of Corn Futures.
Typically, use calls for bullish setups and puts for bearish setups.
Buy one in-the-money (ITM) option.
Sell two at-the-money (OTM) options using a strike located near to where the trade target price is.
Skip one or multiple strikes and buy one further out-of-the-money (OTM) option.
3. Calculate the Cost:
Calculate the net premium paid for the strategy by considering the premiums of each option involved. The net cost is generally lower due to the skipped strike price.
4. Establish the Payoff Structure:
The maximum profit is realized if the price of Corn Futures closes at the middle strike at expiration.
The maximum loss is limited to the net premium paid for the strategy.
Application to Corn Futures
Analyzing the current market conditions for Corn Futures is crucial before implementing the Skip Strike Butterfly strategy. Let's examine the market and set up a trade based on recent data and trends.
Market Analysis:
Current Price: Corn Futures are trading at 456'6 per contract.
Market Trend: The market has shown moderate volatility with a tendency to hover around the 450 level.
Technicals: Recently, buy UnFilled Orders (UFOs) have formed around the 450 level, indicating strong buying interest and potential support at this price. On the other hand, sell UFOs are positioned much higher, around the 490 level, suggesting limited selling pressure in the immediate range and opening the door for a directional move with a potentially strong reward-to-risk ratio.
Setting Up the Trade:
Based on our analysis, we will implement the Skip Strike Butterfly strategy as follows:
Current Price of Corn Futures: 456'6
Expiration Date: 74 days from today.
Strike Prices and Premiums:
Buy 1 ITM Call: Strike Price 450, Premium 27.25
Sell 2 ATM Calls: Strike Price 480, Premium 16 each
Buy 1 OTM Call: Strike Price 540, Premium 6
Net Premium Paid: 27.25 (buy) - 32 (sell) + 6 (buy) = 1.25 points = $62.5 (Point Value is $50/point)
Source: Options chain available at www.tradingview.com
Trade Execution:
Entry Price: The trade is entered at 1.25 points, making it highly cost-efficient.
Target Price: The optimal scenario is for Corn Futures to close at 480 at expiration, where the maximum profit is realized.
Break-Even Points: Calculate the break-even points to ensure clarity on potential losses or gains. For this setup, the break-even points are 451.25 and 508.75.
Risk: In the worst-case scenario, this trade could incur a loss of 31.25 points if Corn Futures surpasses the upper break-even point. Conversely, a minor loss of 1.25 points would occur if Corn Futures falls below the lower break-even point.
Source: Risk profile graph available at www.tradingview.com
Risk Management
Risk management is a critical aspect of any trading strategy, and it is especially important when trading options like the Skip Strike Butterfly. Effective risk management helps protect against unexpected market movements and ensures that losses are minimized while maximizing potential gains.
Importance of Risk Management:
Limit Losses: By setting clear stop-loss levels, traders can limit the amount of capital at risk and prevent large losses.
Preserve Capital: Protecting trading capital is essential for long-term success. Effective risk management allows traders to stay in the game even after a series of losing trades.
Emotional Control: Having a risk management plan helps traders stick to their strategy and avoid emotional decisions driven by market volatility.
Maximize Gains: Proper risk management enables traders to capitalize on profitable opportunities while keeping losses in check.
Techniques for Managing Risk with Skip Strike Butterfly:
1. Stop-Loss Orders:
Set stop-loss orders at predetermined price levels to automatically exit the trade if the market moves against you.
2. Position Sizing:
Only allocate a small percentage of your trading capital to any single trade. This helps to mitigate the impact of any one trade on your overall portfolio.
3. Diversification:
Diversify your trading strategies and instruments to spread risk across different markets and reduce the impact of adverse movements in any one asset.
4. Hedging:
Use other options strategies to hedge your positions. For example, buying protective puts can limit downside risk if the market moves significantly against your position.
5. Regular Monitoring:
Continuously monitor the market and your positions. Be prepared to adjust your strategy or exit the trade if market conditions change.
Conclusion
The Skip Strike Butterfly strategy offers a cost-efficient and flexible approach for trading Corn Futures. By strategically setting up options at different strike prices while skipping an intermediate strike, traders can reduce the cost of the trade while maintaining a similar payoff structure to a traditional butterfly spread. This strategy is particularly useful in markets exhibiting limited price movements, making it ideal for the current conditions in Corn Futures.
Key Takeaways:
Cost Efficiency: The Skip Strike Butterfly reduces the upfront cost of entering a trade, providing a significant advantage over traditional butterfly spreads.
Limited Risk: With a well-defined risk profile, this strategy ensures that losses are capped at the net premium paid.
Profit Potential: Although the maximum profit is achieved if the underlying asset closes at the middle strike price, the strategy still offers substantial profit opportunities within a specific price range.
Risk Management: Implementing robust risk management techniques is essential for success. Utilizing stop-loss orders, managing position sizes, diversifying strategies, and regular market monitoring can help protect trading capital and maximize gains.
When trading options and employing strategies like the Skip Strike Butterfly, it is crucial to stay disciplined and adhere to your trading plan. Always ensure that your risk management measures are in place to navigate market uncertainties effectively.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.
General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
Corn ,bias to the downside...Hello fellow traders , my regular and new friends!
Welcome and thanks for dropping by my post.
Bias should be still shorting it.But take note of the 440 zone.
Do check out my recorded video (in trading ideas) for the week to have more explanation in place.
Do Like and Boost if you have learnt something and enjoyed the content, thank you!
-- Get the right tools and an experienced Guide, you WILL navigate your way out of this "Dangerous Jungle"! --
*********************************************************************
Disclaimers:
The analysis shared through this channel are purely for educational and entertainment purposes only. They are by no means professional advice for individual/s to enter trades for investment or trading purposes.
*********************************************************************
A Counter Trend Trade Setup for Corn Futures?
Corn
Technicals (July)
July corn futures notched their sixth consecutive session with a lower close, the longest losing streak since February. We see weakness again in the early morning trade, but the intraday lows from Monday are still intact, which is actually encouraging considering the better-than-expected crop ratings report we got earlier in the week. 433-436 continues to be the support pocket we are keeping an eye on, this pocket is really where the market started carving out a meaningful short-term low in March and April. From a risk/reward perspective, we believe this pocket set's up for a nice counter trend trade. A break and close below that support pocket would neutralize that thesis, but if the Bulls can defend it, we could see the market seek relief and gravitate towards our pivot pocket from 448-451.
Bias: Neutral/Bullish
Resistance: 460 1/4-463 1/2***, 471-474 3/4****
Pivot: 448-451
Support: 433-436****
Check out CME Group real-time data plans available on TradingView here: www.tradingview.com
Disclaimers:
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
Bearish Corn Futures Technical & Fundamental ThesisIn this video I go over my technical and fundamental thesis on why I think corn futures are bearish. For example, I go over good planting progress, quality ratings of corn, good weather and demand concerns from the energy side of things and even Chinese imports of corn. I also go over the technical side of things and notice technical patterns like head and shoulders and a rolling over shift of trend on renko charts. I hope you enjoy and stay tuned for more!
CBOT:ZC1! CBOT_MINI:XC1! AMEX:CORN
Cornhusker
All ideas are strictly my interpretation of price action. I am not a professional trader nor is this
professional advice.
Corn,Price actions didnt hold up last week..Hello fellow traders , my regular and new friends!
Welcome and thanks for dropping by my post.
Turning bearish on this one..wheat could be as well..it seems like trying to push lower with the toppish pattern that you are seeing on h4...
Do check out my recorded video (in trading ideas) for the week to have more explanation in place.
Do Like and Boost if you have learnt something and enjoyed the content, thank you!
-- Get the right tools and an experienced Guide, you WILL navigate your way out of this "Dangerous Jungle"! --
*********************************************************************
Disclaimers:
The analysis shared through this channel are purely for educational and entertainment purposes only. They are by no means professional advice for individual/s to enter trades for investment or trading purposes.
*********************************************************************
Corn and Wheat to look for long...why?Hello fellow traders , my regular and new friends!
Welcome and thanks for dropping by my post.
Why? will share my thoughts in my trading analysis this week.
Technical wise yes,part of it.
Do check it out ;)
Do check out my recorded video (in trading ideas) for the week to have more explanation in place.
Do Like and Boost if you have learnt something and enjoyed the content, thank you!
-- Get the right tools and an experienced Guide, you WILL navigate your way out of this "Dangerous Jungle"! --
*********************************************************************
Disclaimers:
The analysis shared through this channel are purely for educational and entertainment purposes only. They are by no means professional advice for individual/s to enter trades for investment or trading purposes.
*********************************************************************
Throwing CornAll ideas are strictly my interpretation of price action. I am not a professional trader nor is this
professional advice.
I will continually update all trades.
Corn FuturesThe corn graph has also faced a decrease in demand and the price has been decreasing for several months, but it has reached the annual resistance and from this point, the entry of money can be seen even on the graph with small increases, and on the other hand, commodity indices can be seen from Its price was also investigated and the current price of corn is low compared to similar indices and has to increase.
Corn ShortContinued downside on corn amid supply issues.
Nice clear technical downtrend with volume profiles confirming direction with P-shape and POC at lows of days indicating price acceptance continues to move lower.
Price rejecting off previous swing low, 50% fib retracement with EMA confirming trend.
Possible entry on break through counter trendline and target at previous swing low or previous volume cave.
Wheat and Corn Thoughts In this video I go over my recent thoughts, ideas and reasoning for the Wheat and Corn markets. We question the narrative about the recent rallying and try to be as data dependent as possible by keeping up with news and data and some critical thinking. I hope you enjoy and stay tuned for more!
CBOT:ZW1! CBOT:ZC1!
Falling cobsAll ideas are strictly my interpretation of price action. I am not a professional trader nor is this
professional advice.
I will continually update all trades.
Corn Futures:Evaluating Seasonal Trends Amidst Market VolatilityAs April unfolds, investors and traders in the corn futures market find themselves at a critical juncture marked by seasonal trends and heightened volatility. Historically, April has been a period of growth in corn prices, driven by various factors including planting intentions, weather conditions, and demand patterns. However, the current landscape presents a complex picture influenced by a myriad of geopolitical, climatic, and logistical disruptions.
While the overall corn production from key sources such as the US, Brazil, Argentina, and Ukraine has remained relatively stable, the market has experienced significant turbulence. Geopolitical conflicts, including trade disputes and tensions in key producing regions, have added layers of uncertainty, impacting supply chains and trade dynamics. Severe weather events, ranging from droughts to floods, have disrupted planting schedules and crop yields, further exacerbating market volatility. Additionally, transport issues, including congestion at ports and logistical bottlenecks, have contributed to fluctuations in day-to-day prices and overall market sentiment.
Amidst this backdrop, market participants are actively seeking long setups, anticipating a potential upswing in corn prices. Historical data indicating seasonal strength in April provides a compelling rationale for such positions. Moreover, underlying factors such as resilient demand from sectors including animal feed, ethanol production, and food processing continue to support a bullish outlook for corn.
However, navigating the corn futures market requires careful consideration of both macroeconomic factors and micro-level dynamics. Traders must remain vigilant in monitoring weather forecasts, geopolitical developments, and supply chain disruptions for timely decision-making. Additionally, leveraging technical analysis tools and risk management strategies can help mitigate the impact of market volatility and optimize trading opportunities.
In conclusion, while April historically heralds a period of price growth in corn futures, the current environment characterized by heightened volatility necessitates a nuanced approach to trading. By combining an understanding of seasonal trends with a comprehensive assessment of market fundamentals and risk factors, traders can position themselves to capitalize on potential opportunities while managing inherent uncertainties.
🔥Corn Returm Bullish Trend🔥The corn market is buzzing with positive signals today , promising strong profit potential for investors. Our assessment is spot on as corn prices are exhibiting a robust recovery trend. Across all key timeframes - 4 hours, 1 day, and 1 hour - the upward trend is evident, presenting golden opportunities for investors to seize.
Particularly noteworthy is the emergence of a compelling Order Block resistance zone on the 1-hour chart. This resistance zone signifies significant illiquidity at a specific price level, highlighting it as an ideal buying point to ride the upward trend.
Based on our in-depth analysis, we strongly believe that this is an opportune moment for investors to initiate long positions in corn. The Order Block resistance zone on the 1-hour chart serves as a key to unlocking near-term profits.
BUY LMT ZCEN24:
Entry: 444''0
STP: 439''6
TP: 458
Corn Futures Bullish But With Skepticism... In this video, I'm analyzing Corn Futures (CBOT:ZC1!) with a bullish but skeptical outlook due to incomplete data. While factors like potential rain delays in the US corn belt and dry weather impacting Brazil's second corn crop suggest upside potential, I need further confirmation. Additionally, A slowdown in manufacturing could also reduce demand for corn-based products, adding another layer of bearish pressure also the recent weakness in oil (NYMEX:CL1!) and rising US oil inventories are concerning. This could dampen demand for energy markets, potentially spilling over to ethanol (a major corn user) and weakening corn demand. Overall, there are potential bullish catalysts, but I need a clearer picture before going long.
Options Blueprint Series: Debit Spreads - Precision InvestingIntroduction to Options on Corn Futures
Corn Futures are one of the staple commodities traded on the Chicago Board of Trade (CBOT), representing a critical component of the agricultural sector's financial instruments. Each Corn Futures contract is standardized to 5,000 bushels, and the price is quoted in USD-cents per bushel.
Contract Specifications:
Point Value: 1/4 of one cent (0.0025) per bushel = $12.50.
Margins: Trading on margin allows traders to leverage positions while only needing to cover a fraction of the total contract value. For Corn Futures, the initial margin requirement is set by the CME Group and varies based on market volatility: Currently $1,300 per contract at the time of this publication.
Options trading introduces another layer of complexity and opportunity. Debit spreads involve purchasing one option and selling another, which helps manage the overall cost of entering the market.
Margin for Debit Spreads:
The margin for debit spreads typically reflects the premium paid for the long position minus any premium received from the short position. This results in a significantly lower margin requirement compared to trading the underlying futures contract outright. (In the below example the net premium paid for the spread is 7.26 points = $363, which is significantly lower than $1,300).
Understanding Debit Spreads
Debit spreads are a sophisticated options trading strategy utilized primarily to achieve a targeted investment outcome while managing risk exposure. They are constructed by purchasing an option (call or put) while simultaneously selling another option of the same type (call or put) but with a different strike price, within the same expiration period. The aim is to reduce the net cost of the position, as the premium received from the sold option offsets part of the cost incurred from the bought option.
Mechanics of Debit Spreads:
Long Position: You buy an option that you expect to increase in value as the market moves in your favor.
Short Position: You sell another option with a higher strike (in the case of a call spread) or a lower strike (in the case of a put spread). This option is expected to expire worthless or decrease in value, offsetting the cost of the long position.
Advantages of Using Debit Spreads:
Defined Risk: The maximum loss on a debit spread is limited to the net premium paid plus transaction costs. This makes it easier to manage risk, especially in volatile markets.
Potential for Profit: Although the profit potential is capped at the difference between the strike prices minus the net debit paid, these spreads can still offer attractive returns relative to the risk undertaken.
Lower Cost of Entry: Compared to buying a single option, spreads typically require a lower upfront investment, making them accessible to a wider range of traders.
This strategic application is what we'll explore next in the context of Corn Futures, where market conditions suggest a potential breakout.
Application in Corn Futures
For traders looking to harness the volatility in the agricultural sector, especially in commodities like corn, debit spreads can be a precision tool for structured trading. Given the current trading range of Corn Futures, with prices oscillating between 424 cents and 448 cents per bushel for a number of weeks, a strategic setup can be envisioned aiming for an upward breakout towards 471 cents, a resistance level indicated by Sell UnFilled Orders (UFOs).
Strategy Implementation with Debit Spreads:
Long Call Option: Buying a call option with a strike price near the lower end of the current range (450) positions traders to benefit from potential upward movements. Premium paid is 10.39 ($519.5)
Short Call Option: Simultaneously, selling a call option with a strike price at 475 cents caps the maximum profit but significantly reduces the cost of entering the trade. This strike is chosen because it aligns closely with the expected UFO resistance level, enhancing the probability of the short option expiring worthless. Premium received is 3.13 ($156.5).
The net cost of the spread ($519.5 - $156.5 = $363) represents the total risk. We are using the CME Group Options Calculator in order to generate fair value prices and Greeks for any options on futures contracts.
Setting up the Trade
To potentially capitalize on the anticipated market movement for Corn Futures, our debit spread strategy will involve a detailed setup of options trades based on specific strike prices that align with market expectations and technical analysis. This step-by-step guide will provide clarity on how to effectively enter and manage this options strategy.
Trade Details:
Long Call Option: Buy a call option with a strike price of 450. This option is chosen as it is near the current upper boundary of the trading range, providing a favorable entry point as we anticipate a breakout.
Short Call Option: Sell a call option with a strike price of 475. This strike is selected based on its proximity to the identified resistance level at 471, suggesting a high likelihood that the price may not exceed this level before expiration.
Cost and Profit Analysis:
Net Premium Paid: $363 as discussed above.
Break-even Point: Long strike price (450) plus the net premium paid = 457.26.
Maximum Profit: The maximum profit for this debit spread is capped at the difference between the two strike prices minus the net premium paid = 475 – 450 – 7.26 = 17.74 = $887.
Maximum Loss: The maximum risk is limited to the net premium paid.
Risk Management
By entering a debit spread, traders not only define their maximum risk but also set clear targets for profitability based on established market thresholds. This methodical approach ensures that even if the anticipated price movement does not fully materialize, the financial exposure remains controlled.
Risk Management Techniques:
Position Sizing: Determine the appropriate size of the position based on overall portfolio risk and individual risk tolerance.
Stop-Loss Orders: Although the maximum loss is capped by the nature of the debit spread (the net premium paid), stop-loss orders can be used if the underlying asset moves against the trader.
Rolling the Spread: If market conditions change or the initial price target is reached earlier than expected, consider 'rolling' the spread.
Adjusting the Trade:
If the price of Corn Futures approaches the short strike price (475) faster than anticipated, and market sentiment indicates further upward potential, the short call option can be bought back while a new higher strike call can be sold. This adjustment aims to extend the profitable range of the spread without increasing the original risk by much.
Conversely, if the price seems unlikely to reach the 450 mark, reassess the viability of keeping the spread open. It may be prudent to close the position early to preserve capital if fundamental market factors have shifted negatively.
Importance of Continuous Monitoring:
Regularly monitor market conditions, including factors like weather reports, agricultural policies, and economic indicators that significantly impact corn prices.
Stay updated with technical analysis charts and adjust strategies according to new resistance and support levels identified.
Effective risk management not only protects from downside risk but also enhances the potential for profitability by adapting to changing market conditions.
Conclusion
The strategic use of debit spreads in Corn Futures options trading offers a balanced approach to leverage market opportunities while maintaining strict control over potential risks.
Recap of Key Points:
Corn Options on Futures: Understanding the contract specifics is crucial for informed trading decisions.
Debit Spreads: These allow traders to benefit from expected price movements with reduced upfront costs and limited risk.
Trade Setup: Focused on a potential breakout from the 448-424 range aiming towards 471, utilizing 450 and 475 strikes for the long and short calls respectively.
Risk Management: Emphasizes the importance of position sizing, potential use of stop-loss orders, and the flexibility to adjust or roll the spread according to market changes.
When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies.
General Disclaimer:
The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
Can Corn Futures Stage a Spring Rally?We've shifted our focus to the July futures contracts as the volume starts to increase there and decrease in May futures. May options expiration is this Friday, which means first notice day is next week. If you're in May futures, you may consider exiting or rolling those positions.
Corn
Technicals (July)
July corn futures have traded on both sides of unchanged as we start a new week of trade. The fact that the Bulls were able to defend support late last week is a silver lining for the Bull camp, but upside expectations are likely tempered as it continues to be a mostly sideways trade over the last month. The sideways trade isn't a great environment for the perma-bull or perma-bear, but it's great for shorter term traders, on both sides of the market.
Bias: Bullish/Neutral
Resistance: 441 3/4-444 1/2***, 449 1/2-451****
Pivot: 431 1/2-435
Support: 433 1/4-436****, 422 1/4-424 1/4***
Fund Positioning
Friday’s Commitment of Traders report showed that Funds were net sellers of about 16k contracts (through 4/16/24), that puts their net short position at 279,570. Broken down that is 161,576 longs VS 441,146 shorts.
Seasonal Trends
(Past performance is not necessarily indicative of future results)
Check out this link to review the chart.
bluelinefutures.com
Below is a look at price averages for December corn, using the 5, 10, 15, 20, and 30 year averages. We update this each Monday. If you'd like to look at different contract months, spreads, etc, let us know and we can send those charts to you.
Check out Blue Line Futures
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Email info@Bluelinefutures.com or call 312-278-0500 with any questions -- our trade desk is here to help with anything on the board!
Futures trading involves substantial risk of loss and may not be suitable for all investors. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
Blue Line Futures is a member of NFA and is subject to NFA’s regulatory oversight and examinations. However, you should be aware that the NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets. Therefore, carefully consider whether such trading is suitable for you considering your financial condition.
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Corn recouping early week loses and setting up a test of 3-star.Corn
Technicals (May)
May corn futures tested the low end of the range in yesterday's trade and have so far been able to defend it, with prices working back higher in the overnight and early morning trade. We still like the risk reward trade to the buy side from the low end of the range. A break and close support would neutralize that bias as it could put the Bears back in complete control of the technical landscape.
Bias: Bullish/Neutral
Resistance: 441 3/4-444 1/2***, 447 1/2-450****
Pivot: 431 1/2-435
Support: 421-422***
Fund Positioning
Friday’s Commitment of Traders report showed that Funds were net sellers of about 4k contracts (through 4/9/24), that puts their net short position at 263,554. Broken down, that is 158,480 longs VS 422,034 shorts.
Seasonal Trends
(Past performance is not necessarily indicative of future results)
Below is a look at price averages for December corn, using the 5, 10, 15, 20, and 30 year averages.
Check out CME Group real-time data plans available on TradingView here: www.tradingview.com
Disclaimers:
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results.
