Options play: Are soybeans and corn ready for the next leg down?

September 23, 2014 06:17 AM

Options play: Are soybeans and corn ready for the next leg down?

As soybeans and corn make fresh new lows, are they poised to continue lower as we head into the harvest?

Fundamentally, as soybeans and corn have reached new contract lows, are they poised to continue lower as we head into the harvest? According to a Bloomberg report yesterday (9-22-14), "Soybean and corn futures extended declines to the lowest in more than four years as harvests accelerated in the U.S., the world's top grower." Yesterday, I spoke to farmers and bankers in Nebraska and Iowa and they both basically had the same news for me. We have bumper crops and prices suck! My guess is that, as of now, fundamentally there really is no bottom in site. That is just my opinion.

Technically, I have added my favorite technical indicators to this chart below. They are the 9- (red line), 20- (green line), and the 50 (blue line) day Simple Moving Averages or SMA's. I have also added Bollinger Bands or BB's (the light blue shaded area) and Candlesticks (the red and green bars with the wicks, on this daily chart each bar represents a day of trading). These few technical indicators tell me 8-10 different characteristics about the market at a quick glance so I have them saved on my charts in MARKETHEAD, so they can populate a chart at the click of a mouse.

What we have here with the November soybeans first and foremost is a market that has gone from a sideways consolidation mode back to a "SUPER-TREND" down. Why you say? Because the 9 day SMA (red line) is still below the 20-day SMA (green line) and they have gone back to pointing lower while the market is trading below the 9 day SMA. Also we have clear cut resistance areas in my technical opinion; first the 9-day SMA, next the 20-day SMA, third the top line of the BB's (light blue shaded area), and finally the 50-day SMA.

I figured this out by pulling up and studying a daily chart with my indicators by the click of a mouse which I found here, which is a web application that we have developed for our clients called MARKETHEAD where I get about 80-85% of all my research from. That means I get both technical and fundamental research from this web app and I am a veteran series 3 Broker of 15 years. So if I'm using it then maybe my readers should check it out. Yes?

November daily soybean chart

Technically I have the same indicators on the December corn chart telling me the same thing. The ZCZ4 is also in what I refer to as a "SUPER-TREND" down. The 9-day SMA as crossed down and under the 20-day SMA as both indicators point lower on sharp angles as the market trades below the 9-day SMA.


December daily corn chart


Options play

Some good plays I think could be to buy puts or put spreads with a call for a hedge or "insurance" in case the trend changes to up dramatically. I would recommend this a 3 to 1 ratio as always. Puts or put spreads give a limited risk and an in the case of outright put options, unlimited profit potential to zero for the price of the underlying future or commodity.

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 current downward action or maybe the potential for future consolidation.

For exact details on strategies, months, expiration dates, strike prices, and number of positions feel free to contact me at 312-277-0115 or mmckinney@zaner.com.

It is also important to note that I am not married to a market, but to trends. So I make recommendations with options on futures and commodities like the energies, metals, currencies, softs, financials and more.

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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/.