Hello all, I've been dabbling around the forums here off and on for awhile - and I thought I'd give some insight into what I myself and some other pit traders are thinking about the Agriculturals as of late. I myself trade the front month Hogs contract in the pit everyday. We're obviously seeing some hesitation in the commodities because of CFTC talking about more regulation that would force selling in the market. That aside, there are some great opportunities emerging. First of all, Wheat is beginning to look very interesting. There is absolutely little reason to be holding short the CBOT, KBT, or MGEX wheat contracts. I would say there is a good chance that speculative (non-commercial) interest begins again occuring in the market like we saw in February and March (what we call The Wheat Craze). We're still seeing worldwide demand kick up and prices are bottoming out here. I'm now long the September Wheat contract after we saw a heavy sell-off today into the close. Some other locals are beginning to slowly build a position in the September Wheat, along with a little in the July. Second, look to start getting short the August Lean Hogs contract. The pit is overly short the June/July contract and usually we'll start having some rollover their positions to August. We're in a narrow trading range across all the months so I'd consider shorting above 0.7900 per pound (LH trades in 40,000 lb. contract increments). The 15-year seasonal patterns shows that the August contract sells off in Mid-June and then starts rallying in the end of July, so that would be a good exit point. Another historical seasonal spread is in the Soy complex, going long 2 Soybean Meal contracts and short 3 Soybean Oil contracts. I put this spread on yesterday in the afternoon, and I already seeing it increasing in my favor (SM going up, BO going down). This is a historical trade that goes back 15 years, working 100% of the time if put on around this time of the month. If anyone has any questions, feel free to throw them my way in this thread or through a PM.
Just wondering if you know of anyone in the pit who gamma scalps by hedging long options with futures calender spreads? I would think this would work well in the pits because you could do lots of volume with limited risk.
Interesting you bring this up. There are two breeds of local floor traders down here: the scalpers (some called market makers) and then the option guys and spreaders. I myself am not an options guy, but the people that do it successfully are absolutely amazing at what they do. There are some guys that do really complex things with options, combining, like you said, option positions with calendar and other commodity spreads.
I too am a fan of the long wheat trade. However Im not sure I would just flat out by the stuff. Im long a sep kc/chi wheat spread around 37 and look to add more on breaks. Looks like a good trade here. Also hearing there is a big commercial stopper in wheat that is adjusting the carry calcs (figuring higher interest rates). If we can get sep/dec to trade a little lower (I figure they will adjust if a few cents at most) I want to be a buyer of that spread. I have a funny feeling that end users are going to overbuy after harvest just so they don't get in a tight spot like last time. This should pop sep/dec hard (maybe 20 cents). Also I like auggie/nov beans. Hearing locals are long that spread and its a seasonal spread anyway. Tight stocks with good demand should really make this spread rock and roll. However I think beans will get a few more acres than previously thought I do not think that they will get a lot more acres though. Most acres will still go to corn. Think about it.......these farmers have already invested in nitrogen, potash, phosphorus, anhydrous, etc to get ready to plant corn......not to mention they probably have a lot already sold ahead of time. So essentially they are obligated to plant the stuff. I like selling dec 620 straddles in the corn market....puts break profit range around 750-480 which I think is a pretty safe bet. The trade pays around $6500 if corn stays between those levels.
Just to give a little more insight here folks - Took off some September Wheat during the day as there wasn't much spec or commercial interest in the pit by the end of the day. One of the big locals that trades corn and wheat established some short July corn position (at least from what I saw 80+ contracts) into the weekend with intent to hold it for awhile. May be interesting to see where it trades during the next week. A lot of non-commercials (spec) being long corn here (I think net is 250k+ futures at the spec level), and may start some liquidation at these levels. If you're short July hogs, I'd begin rolling them to August. We sold the Julys off today, mainly activating sell stops that caused the domino effect we saw in the last 3 minutes of the close. Good time to cover them at this point.
Is it possible to create option positions on 2 different months that would result in an option position on the calendar spread? Let's say July/ September ZC is trading at 12,5 / 12,75 and you want to sell a September call on the calendar spread at 15, can you do it through options positions in the realted months? Thanks.