Wheat Options Comment

Wheat options by Thomas Barry (TQB): Futures push the lower envelope one last time ahead of USDA.

 

The way the trade here in the wheat options has been going, if it works, keep doing it, which has been the case with paper’s penchant for buying puts and selling calls as the futures continue to show absolutely no ability to support flat price levels that are now the lowest since July 2012 going into Friday’s report, with hardly of blink of bullish input on the part of paper. Front month implied was up in the front (Feb. and Mar.) and down in the back (July Sep Dec.) on Thursday, reflecting the general flow of orders that just can’t seem to get enough of the Mar. put slope at the same time as they don’t see a July upside call they wouldn’t want to punish just a little more.  Such is the situation for wheat options locals.  They certainly had downside Mar. puts to sell last week at this time, but after four wicked days of downward momentum accompanied by plenty of customer buying in the Mar. 600, then 590 then 580 and 560 lines, there’s probably far fewer if any…..bullets left in their guns as we head into the report.  Volume on Thursday was nice and brisk, with almost 25,000 trading in the ;pit and 12,000 more on the screen.  That sort of action spoke of the widespread interest going into this January report, which is usually the case.  But as for what to expect once the news is out and traders try to make sense of a market that has been pressed into submission for months and whose open fun shorts are so far away from current levels that you’d be hard pressed to find anyone afraid of selling anything 650 strike and above in any month.  The amount of short term put buying in the last two weeks has been a sure indicator of how the customer end has been approaching the market.  It has worked like a charm.  Without having to actually sell futures at such historically low flat prices they still managed to get a real nice bang for their collective buck simply loading up on cheap front month gamma, and they just got a quick and deliberate 35 cent break to warm up their young new year.  There are cheap vega options all over the place now.  Take your pick….July, Sept. Dec…..they’re all fair game for the right player to step in and take a stand.  Mexican influence often surface at this time of year, and no one would be terribly surprised to see that sort of development in the wake of a negative report on Friday….we’ll see.

 

Remember – The most important thing in communication is hearing what isn’t said

 

WHEAT     ATM^    VOL

G580^      23-25      25

H580^      33-35      21

K590^      51-53      20 1/2

N590^      64-67      20 3/4

U600^      80-83      21 1/2

Z620^      93-96      20 1/2

 

KC WHEAT   ATM^      VOLS

G640^         23-25      22 1/4

H640^         33-35      19

K640^         51-54      19

N630^         64-67      19 1/2

Z660^          93-96      19 1/2

 

 

Thomas Barry