Grain Spreads: Strangle Idea in Soybeans

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Commentary

It was a volatile week in the soy sector.  The week started with optimism around U.S.-China trade relations that drove soybean futures to multi-week highs, fueled by large, confirmed sales for both old- and new-crop beans. The USDA announced another sale of soybeans to China today in the quantity of 264 thousand metric tons for the 26/27 marketing year. Front end spreads seem to be playing it as a blend of old and new crop purchases. Between more China flash sales, more China price inquiries in soybeans, and an updated US balance sheet that could potentially see a 1.5 bushel/acre away from a rationing situation, the soybean market found itself being bought up right beside corn futures following  today's crop report.

Today's WASDE report came in slightly friendly for beans, with US old and new crop ending stocks and world ending stocks coming in slightly below guesses, with no major surprises. Yields were left unchanged as expected. Weather will be the market's main concern next week as this report did not have a deviation significant enough to be a major market factor in my opinion. With hot temperatures moving into the Midwest and Plains next week, any shifts in forecast models will be important. In my opinion, we aren’t staying in a 1180/12.00 range for much longer. Strangle Idea below.

Trade Ideas

Futures-N/A

Options-Buy the October 11.00 puts. At the same time sell the October soybean 13.50/12.50 put spread. Work to sell the strangle at an 84-cent collection or $4200, less trade costs and fees. ZSV26P1350:1250:1100[1-1-1]

Risk/Reward

Futures-N/A

Options-The margin here is $453 per spread, with a max risk of $800 plus commissions and fees. Work bids to cover the strangle at 40 cents, for a gain of 44 cents less trade costs and fees. Risk no more than 10 cents on a GTC stop loss for a risk of approximately $500 per spread plus trade costs and fees.

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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