HG lean hog and ZS Soybean Journal

Discussion in 'Journals' started by yc47ib, Feb 3, 2020.

  1. yc47ib


    Been trading indices, gold and oil for some years, after observing for a few weeks starting December 2019, I decided to ease into trading some lean hog and soybean, using the US-China phase I trade deal as a jumping board.

    Being conservative, I did not just jump into long or short, instead, I marked two technical levels I thought it would be very hard to reach as a pull back to long. I waited for weeks for prices to reach the level, I thought I was lucky they ever reached there.



    Both levels are technically an extreme pull back (weaker than double bottom) to the zone between 61.8%-76.4% pull back, which I have been trading on all time frames for all types of other instruments.

    To add another layer of being conservative, I did not buy long, I sold HE Feb 14 65 PUT, collecting 430; and ZS Feb 21 9.1 PUT, collecting 750.

    For quite a few days, I thought I would be collecting those premiums for free, then the corona virus hit. Here are the charts as of today.

    The unrealized loss of HE put is about 3-3.5k, that for ZS is 1200-ish.

    I think the main reason for the drop is the potential of not buying by the Chinese, one reason is most of the restaurants are closed due to the virus. It is said the demand for pork will drop by 40%.

    I decided to roll the the HE Feb PUT to April 15 65 PUT, I collected 2300; with the original 430, I have collected 2730. If approaching April expiration, HE does not reverse in some fashion, I will consider rolling again or get assigned (? have not checked whether this is financially settled or delivery, LOL, although I am in the restaurant business in the US, I do not want to get that many hogs, I will check, if someone reading this, kindly point out please, thank you.).

    I am already seeing reversal of some sort in ZS, will wait a few more days to decide what to do for ZS put.

    The following capture is for record. No, I do not look at the Greeks on these, I think they are what they are, I cannot change or fade them, thus no use for me. But I have a firm believe, unlike stocks, these will not go to zero, like the indices, prices are driven by fear and greed, secondarily by supply and demand. And I am well capitalized to trade one position each to zero, so, risk management is irrelevant here, I am NOT getting out if I am not profitable.

  2. yc47ib


    Did my own homework, lean hog futures is financially settled, and options settles to futures, so, I do not need to worry about shipping and storing 40,000 pounds of lean hog.

    however, for ZS, I have worry about Deliverable, 5,000 bushels (~136 metric tons) for each contract, so, should I roll the contract to next leg?

    If yes, which leg should I roll to? not 9.1 again, right? Eyeing the 8.6, if I roll to that one and expires worthless, I will be breaking even.
  3. Is your broker IB? They do not allow physical delivery of any commodity and will close your position before there is a chance of being assigned.
  4. gaussian


    I can't think of a single broker that would allow this. In fact, if I remember correctly, at first notice if you don't post the cash bond for the deliverable you'd be closed out anyway.

    This can't possibly go wrong.
  5. Handle123


    I am very curious as I once had a notion of stick in the mud and it cost dearly. Do you even care about drawdown percentages or is it all about being right in your judgement? Since you asking a question of what you should do tells me you not back tested your method enough or at all. I been trading relatively same long term approach of all USA exchange commodities since early 90's, do I ever ask anyone here what to do? and you are doing naked options? I recommend to get out and back test, cause clearly you are running out of options.

    Risk management is my edge, it is only segment of trading that for me is somewhat controllable.
  6. yc47ib


    Thank you all for your kind input. No, I use gain capital clearing with two other brokers (one broker for one contract), not IB on these trades, though I have a few IB accounts. They are not as well capitalized as these two to handle them going to zero while still having tolerable draw-down.

    Here are some updates:
    upload_2020-2-5_10-18-23.png the loss is reduced from 1200is to 900ish for soybean, 750 is the cost base. Still waiting to see what will happen, Soybean seems to build some bottom. Not sure, will roll forward when broker gives a warning.

    And for lean hog: upload_2020-2-5_10-19-47.png , 2300 is the cost, not much change since I rolled forward.

    I am using these two commodities' movement to gauge the TRUE corona virus control situation in China, assuming the big traders are always smarter and have more information than the small players like myself.
  7. yc47ib


  8. Don't forget that the lean hog prices are influenced since quite some time based on news regarding the swine fever in China. This problem is already ongoing for over a year and appears to be difficult to get under control.
  9. yc47ib


    Thank you HobbyTrading, had that in mind.
    upload_2020-2-6_10-34-52.png upload_2020-2-6_10-34-14.png
  10. yc47ib



    #10     Feb 7, 2020