Option play: soybean sideways action

June 4, 2014 04:05 AM

According to the USDA crop progress report from the week ending May 25, of the 18 states that planted 95% of the acreage, we are above the five-year planted average. The five-year average is 56% planted, and the report ending May 25 had us at 59% planted. Although these numbers show that we are ahead, it's not by much, and there's a long way to go.

Some states ahead include Iowa at 80% planted versus the five-year average of 75%, Indiana at 58% versus the five-year average of 50%, and Illinois at 64% versus the five-year average of 50%.

Some states behind include North Dakota at 31% planted versus the five-year average of 45%, Michigan at 29% planted versus the 5 year average of 54%, and Minnesota at 49% planted versus the five-year average of 67%.

Daily July soybean chart 

I have added some of my favorite technical indicators to this daily July soybean chart below (CBOT:SNN14). They are the nine, 20, and 50-day Simple Moving Averages (SMA'S), the Bollinger Bands (BB's, yellow lines), and Candlesticks (red and green bars, each representing a day). I happen to like these indicators because they can tell me dozens of important details and can do this in any time frame, in any market.

This chart shows we have a fairly sideways market and many of my favorite indicators are confirming this for me. I drew in the royal blue, horizontal arrow lines to show the range I believe soybeans are trading in, between about $15.25/bushel on the high side and about $14.45/bushel on the down side. It's a wide range and that leaves plenty of opportunity in between.

The other important information is the way the 50-day SMA (blue line) is trading on a nice, slow, upward track. The nine-day SMA (red line) is also pointing on an upward slope, though it just started doing so. However, the top line of the BB's (yellow lines), the bottom line of the BB's, and the 20-day SMA (green line) are all pointing sideways.

Option play

I believe this could be an opportunity, of course not without commensurate risk, to sell deep, out-of-the-money call options and collect premium. This is due to the sideways action.

About the Author

Matt McKinney is a full-service options broker at Zaner Group both buying and selling energies, metals, grains, softs, currencies and the 30-year bond market. My strategies include time frames of 45-120 days with the ability to liquidate at any time. I can be reached at mmckinney@zaner.com.

Whether you're a novice trader who wants to participate in options on futures or an experienced trader, you can also check out my blog at http://www.mmckinneyfutures.com/.