The December Corn $4.30/$4.50 call spread expired worthless on Friday at the December option expiration. We had three of those spreads that expired, and the resulting loss turned out to be $262.50 gross, total for all three spreads combined.
Today, I will begin covering the March contract. March corn is up 6 ½ cents at $$4.13 ½ this morning as I write. The weaker dollar is the main reason for the strength. I am not hearing anything about the crop condition which is bothersome. The enclosed chart shows that March corn is in a bull move with strong support down near the $3.80 area. The strong resistance is in the $4.25 area. Basis the March contract, my technical chart objective for March corn is in the $4.60 area.
Followers of this letter should be short 1 March Corn ($3.20 strike) put option from 6 ½ cents, and long one March Corn ($4.30 strike) call option from 17 ¼ cents and short 2 March Corn ($4.90 strike) call options at 7 3/8 cents each. There are 88 days left until March options expire.
If March corn prices ever close below the $3.80 area, I would hope that the producers have already liquidated most if not all of their corn that needs to be sold.
Producers should have up to 75% of their crops hedged with put option strategies or 50% hedged and have sold a portion of their crop already. If prices spike past $4.00, consider selling more of your crops along the way as prices trade higher hopefully towards my target of $4.50. I wouldn’t hold out for $4.60 because prices may never get there. Instead, steadily scale out of your corn holdings.
For those of you who need to look at hedging next year’s crop, you may want to consider locking in some prices for next year’s corn crop as December 2010 prices reach into the $4.50 to $4.90 area.
David Hall
The information and opinions contained herein comes from sources believed to be reliable, but are not guaranteed as to accuracy or completeness. The risk of loss in trading futures and/or options can be substantial. Each investor must consider whether this is a suitable investment. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.
