Matt's Mailbag for June 22, 2011
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Below are some of the recent questions sent in over the past couple of weeks to Matt Pierce by subscribers with Matt's responses.
Hi,On the twitter it says corn reached for but failed to approach limit on the close. On the CME website the limit up is 766.40 (ZC) July corn. My chart shows it touch and go to 766.50 and then retreated. At what point does the market lock? and what are the conditions for when it would restart trading?
Sorry for the questions, I am fairly new to Trading grains, but not a new trader to the markets.
Sincerely,
Pam (In Canada)
766.4 is our way of stating 766.50. In CME terms, .2 is 1/4, .4 is 1/2 and .6 is 3/4.
The market locks 30 cents higher then we trade synthetically via options.
---MPI
I do know what put and calls are..not familiar with the term.
Thanx
Paper
refers to off floor originated orders. It’s an older term from the days
we put everything on paper orders to get into the pits.
In
simple terms, customers are selling WU and WZ puts and put spreads. I
am not specifying commercial (cash) or fund (speculative) clientele.
---MPI
Matt,
I (speculator) sold my length in September corn on the way down with a nice profite.
Now
I am asking myself when there is the right time to build up new
positions. Do you think the current lows are in, or should we wait for
a couple of days ?
Would you prefer to entert he CU-CZ spreads,
probably via options, or would you prefer to enter the CU call spread
you suggested a few days ago ? Or any other suggestion ?
Thanks a lot for your advice !
Best regards, Ernest
I would adjust the CU-CZ spread to look at buying the 50 call outright or the 100 call outright depending on how much you want to pay.
Concerning the call spread I put on, I'm sticking with the idea due to time value and what I see as oversold conditions in corn and wheat.
If you want a higher delta, look at moving the call spread lower. Maybe like the CU 730-780 for around 15-cents.
I feel corn is oversold. It may take a few days but I think the recovery will happen with supply remaining a major question, drought in early corn in the Delta growing and finally Chinese interest appearing.
- MPI
Matt,
I
need some advice. I am still in some July Corn 740 calls. I
was hoping for a bounce to get out but that has not happened yet.
I
read that in the past some bull spreaders wait until the OI in July
gets down to 20% of total OI in corn and then they start bull spreading
against Dec.
I think the article referred to 1996, so I don't know if this happens every year.
I could lift my calls now and salvage some money or should I wait and see is this bull spreading happens this year?
Any other trading advice would be greatly received.
Thanks,
Kevin
I think the calls are a problem in that waiting allows a steepening theta curve to cut into any possible gains that may come.
I remain bullish corn so maybe look at rolling them to August or Sep. I say don't go beyond that to try to take advantage of any bull spread move.
The OI situation in July is odd this year due to the immense amount of in the money calls the market is sitting on right now. If a standard expiration takes out 50-80K, this expiration looks to take out 100-150K. This is likely a major factor moving forward.
Overall I love the corn length but with time against you, I feel you likely have to move forward to retain any potential.
I just responded to another gentleman with this idea, for a try at an immediate return look at the CU 720-780 call spread for around 15-cents. This is a minor adjustment lower from the idea earlier this week.
- MPI