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A Time to Use Short-Dated Options

On March 31, the much-anticipated Quarterly Stocks and Acreage reports will be released. Historically, these are reports that can provide significant volatility, and they may set the tone for price trends. Short-dated options can provide buyers with a fixed-risk instrument to shift risk or take advantage of opportunities. Short-dated options are an alternative to traditional or long-dated options.
Short-dated options are available in the corn, soybean, and wheat markets. The underlying futures contract for every corn short-dated option is December. The underlying futures contract for every soybean short-dated option is November. As an example, the buyer of a short-dated May corn put has the right (not the obligation) to sell December corn futures. This is similar to a traditional December put option, which gives the buyer the right to sell December corn futures. However, as a May short-dated option, it expires in April. The rationale to buy short-dated corn options is to own a tool that can be converted into a December futures for less cost. Because you are purchasing a shorter time period, you will spend less money.
Time is a pricing component for options. The shorter the time period you purchase, the lower the cost. Short-dated May options expire on April 21. This provides you time to shift risk going into the reports, as well as an additional three weeks to monitor price movement.
If you are concerned about a negative report that could send prices lower, buying a May short-dated option as a producer could protect the price of your 2017 crop. For those who buy corn or soybeans, buying a short-dated call will provide a price ceiling should prices move higher. The downside in using short-dated options is, of course, the limited time. This is something you will need to contemplate before entering a position. The anticipation of a surprise report on March 31 will loom large in the days ahead. Consider ways to protect yourself.
If you have questions or comments, contact Bryan at Top Farmer Intelligence (800-TOP-FARM, ext. 129).
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

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