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cropsey, il 61731 | You make a good point f4$, buying and selling calls/puts at the same time to limit your cost is certainly a good idea and there is no margin call. The thing I've noticed is that all of these 'bets' have the odds figured by folks generally knowing (or controlling) what's going to happen to some extent. If there is an apparent bargain position, it is likely it will not produce much revenue - not that it can't, but the bargain prices suggests low odds. We try to use our own inside information to win those bets - sometimes we know something, sometimes it's a big country. Winning those bets also means something relatively unexpected happened - acre battle more fierce that expected, greater reaction to a weather problem, new players in the market not previously expected, etc. The market tends to 'price in' most of these events, but is not immune from missing it.
When I have used options it's been mainly as price insurance and it's not cheap (a 10 cent/bu option costs $20/acre - 200bpa corn). Often a put strategy near all time highs is going to pay when it finally washes out - it will eventually wash out since trees don't grow to the sky, but could you afford to buy enough time to get to the other side?
For the most part if you feel/analyze/hear there is an opportunity go for it - but stay disciplined - it's always better to take some profit rather than just buy another bmw for a trader or broker. One thing we have working for us is volatility so things have a tendency to change much faster - you'll know if you are right or wrong much sooner - maybe you don't have to buy as much time value at times. However, it's not always the case. Last year I sold corn at a basis low and reowned with calls. The calls brought my final price up maybe 40 cents (good in my experience, but I sold at the low for the year), however I really couldn't afford to buy enough time to capture the real run up in the market. In the end I would have been money ahead regardless of the basis to either do a basis contract to stop storage costs and set price later (if I needed the cash) or just hold on for better prices.
What this says to me is that there is no perfect way to guarantee a cash price and participate in all of the upside - it will tend to cost every penny of the upswing (ie. it costs nearly a $1 to participate in a potential $1 gain). If you want to protect price, futures/options can do it. If you want to sell your bushels more than once (ie. at the elevator and on the board), you can but it eventually becomes speculation and there is at least one looser for every winner (some times many more loosers). It's a game and fortunately it's not the farmer necessarily against the trader - there are plenty of traders on the farmer side (typically long). Part of the issue is that we don't always want to play the whole game. As one of the videos stated - "don't buck the trend". In a down market we should be shorting just as eagerly as we go long in an up market - but that would make us traders as sometimes it's best to focus on what we are good at and not be distracted by the promise of riches waiting on the table for us.
Guys like SC and others spend a lot of time and research looking for market trends and opportunities and are certainly multi-dimensional in their trades. Corn, beans, hogs and cattle are just a portion of the total commodities market and they tend to go where there is profit. After this past year SC may never put another dollar in hogs again because it may be loosing it's potential for gain/loss and for fear of his family putting him away. Heck, our main commodities might go into stagnation and the action swings over to metals, oil and maybe something new like water or carbon credits - at that point we might only get an occasional post that Perspicuous Risk as been updated. Having said that, play away with the markets understanding that it's unlikely we're going to put the kind of effort in to make it a profit center year after year - I guess I'm saying it is what it is and keep that in mind.
Thanks,
Pat | |
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Option adv ice
