Grain Spreads: Corn Strangle

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Commentary

Corn saw a heavy volume session, but values went virtually nowhere as prices stalled in the middle of the range of the last 2 months. Watching or trading corn has been like watching paint dry. There seemed to much better action and money flow when the government shutdown and it was the same for soybeans as well. Last yield number for corn was 186. Pre report guesstimates put this crop at 184. If realized given the torrid demand pace put corn ending stocks down to 1.7 to 1.8 billion from 2 billion currently. But what if they leave yield alone or drop it down some but not below 185, or on a bearish surprise keep it at 186 or even raise it? Then this market would get pounded in my opinion. We closed 2025 at 440. That put a 5% move both up and down for corn to either move to 4.18 on a five percent move lower post report. 4.62 basis March corn would be a 5 percent move higher. Corn has been in a wedge for 2 months. Sideways trade where the buying runs dry at 450, with no sellers found at 4.35. Managed money moves in 5 percent increments and uses percentage levels as targets in my opinion. I see one of these two scenarios playing out poste WASDE report on January 12th. Trade idea below.

Futures-N/A

Options-Buy the February corn 440 put/450 call strangle for 8 cents or better. 

Risk/Reward

Futures-N/A

Options-We are buying 1 call and 1 put for a report day play. Risk 4 cents or $200 from entry. Maximum risk is 8 cents or $00 plus trade costs and fees but use a stop loss at 4. Work to exit the strangle at 24 cents for a $1200 collection per strangle and a 16 cent or $800 gain on trade less trade costs and fees. This is just one strategy to play the report. The reason for a strangle is that we don’t know what the USDA will give us on report day. 

Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

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