Grain Spreads: Corn Strangle

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Commentary

Tomorrow’s WASDE production data release will contain actual FSA numbers, and these have been known to contain surprises. For the most part trade is expecting more soybeans and fewer corn acres tomorrow. But as always maybe expect the opposite. Monthly WASDES from here on out could contain surprises. For corn there is a wide range of reputable estimates from as low as 178.5 to as high as 186.9 bushels per acre. Based on numerous models, the whisper number for corn yield comes in very close to 184.0 B.P.A. This assumes that acreage holds steady in tomorrow’s report. Acres a major wild card. The USDA has the right to revise acreage based on the FSA certification report also released tomorrow. August is not commonly the month the USDA modifies the national acreage and typically saves that for September. Rumors of discussions between Ukraine and Russia on ending the Black Sea export standoff were around the market this morning, but so far nothing even close to being confirmed. In my view the weather forecast remains decidedly bearish with heavy rains expected across the heart of the crop belt. However, that rain in my opinion has been advertised for several days and weather base selling is being offset by other bullish global fundamentals, keeping corn prices from falling even further. Strangle idea in corn below. I see a 20 cent move in corn quickly. Which direction? Looking at Weekly options.

Trade Idea

Buy the September Week 1 440 puts and September Week 1 480 calls. Bid 7 cents or $350.00 on the strangle, plus trade costs and fees.

Risk- The options expire on Friday September 4^th. So, there’s time for a move of 20 to 30 cents in corn. Preferably we want our target to get filled this week. We want to risk no more than 4 cents upon entry or $200 plus commissions and fees. Place an order to exit strangle at 22 cents. For a gain of 15 cents less trade costs and fees. 

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Sean Lusk

Vice President Commercial Hedging Division

Walsh Trading

312 957 8103

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slusk@walshtrading.com

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