Wheat Options Comment

Wheat options by Thomas Barry (TQB): Painful wheat options trade

 

What makes wheat options locals do something as crazy as selling the July 660 straddle for 82 cents 500x with 220 days left and no concrete idea about what could potentially happen between now and then?  Maybe it was the relentless selling that took place in the Sept. 630 puts covered v. $6.70 from 30 1/2 down to 29 1/2 2000x all day, with three different customers asking “how many are you guys 29 bid on now?” That’s the sort of action that tends to weaken the knees of traders who have been mostly buyers of July and Sept. since 22% and now have the uncomfortable job of playing a very un-amusing game of chicken with customers with more money and more time in order to maintain their footing until things can somehow switch from “sell everything before it goes to zero” and a more realistic assessment of just how much cheaper things need to get before we find value again.  The current implied volatility levels for wheat options continue to amaze even the most pessimistic watchers, but how can you argue….or worse, actually get in the way and buy some more of this stuff given the underlying anemia and the lack of fundamental reasons for testing an upside that doesn’t even have the old standby fund short as a motivating factor for wheat futures doing anything close to the runup we saw last month. Now we need new reasons, and they simply aren’t popping up.  Wheat/corn and has certainly come a long way recently.  Maybe that’s the next catalyst for some movement.  But most might say that corn will simply realign that relationship over the next couple weeks, and we’ll see it widen again.

 

Z16% 650 12-14, H18% 660 48-49.5, K19% 660 66-68 and N20% 660 82-83

 

You gain strength, courage and confidence by every experience in which you really stop and look fear in the face.  You are able to say to yourself, “I live through this horror.  I can take the next thing that comes along.”

 

Thomas Barry