Tuesday’s Wheat Options

heat options by Thomas Barry (TQB): Report leaves the wheat on the ropes.


In the days ahead of the recent USDA report, traders saw the front end get bid up and the back end upside get sold. That left things a bit lopsided as the fresh news hit the market.  But once the report was out and the verdict clearly bearish, Mar implied volatility was done a swift reversal, buckling under the weight of plenty of fresh selling in the very things (600, 590, 580 and 570 strikes) that they were buying leading up to the report.  Mar. implied got down to 18% on Tuesday before locals simply stopped offering it.  And the July and Sept. Premium that was in the cross-hairs of sellers all last week caught a bid in the last half of the day Tuesday, with I Cap and Macquarie coming in and buying the 580/600 strangle there from 55-56 1000x and the Sept. 590 puts vs. 6.00 750x.  As for the beaten down Mar., locals are treading lightly with current price action.  They certainly don’t want to get stuck choking on wasting options any more than they have been over the last couple sessions, as sellers post-report appear to be quite motivated in exiting earlier trades. But on the same token, they are not excited about selling Mar. at such deeply discounted levels.  Therefore, there is a serious skittishness to the Mar. offers right now.  Locals here are quite wary of the potential set up that brings some fresh bargain hunters into the wheat options pit and they don’t want to be caught coming and going as we continue to discover exactly where this underlying market might be headed in the next couple weeks.  Corn’s upside potential has been sparked by last week’s numbers, and it’s tough to say just how much of a moderating factor the wheat will play in that impending scenario.


Remember – Everything happens to everybody sooner or later if there is time enough.


Thomas Barry