Heil Harvesting, Ulysses KS/Limon CO | By far the worst thing that could happen in that situation is corn runs to 8 bucks between now and 09 and you are making margin on that call you sold, that would be $10K a contract--now you really do not loose that money, what you lose in the futures you gain back in the cash market. Sure can put a strain on a guys cash flow though. Of course, you would look like a genius if corn went back to 3 bucks.
To my customers this is what i have been recommending;
If you feel it is time to do something for 09 is try something in the cash market--either a hedge to arrive (leave basis open and lock in basis w/a basis contract when basis is narrower) or a straight cash contract if you can lock in a decent basis. I like options strategies for the current production year but TOO much risk for my taste going out any further than that, 10000 bucks/contract for a 2 dollar up swing in the market is going to put a huge cramp in the healthiest cashflows. Do I know that the market is going up 2$--absolutely not, I would be some place a lot warmer if I did. There are a lot of things can happen between now and then, the most real to me is a continuing weakening dollar or a crash in biofuels could work both ways. If you are happy with the price you can recieve, lock int in the cash market, upside potential is great, but sitting a call for 20 months takes a much stronger stomach than I have. I would not encourage selling a great deal of 09 crop but 10-20% at these prices would be nice.
08--I really like the strategy you are talking. I am not doing anything right now, looking for a little sign of weakness in the market, but a 560 put and 640 call for a net of a quarter is what i would encourage. Upside to 615 and floor at 535.
Edit: I might add that an options strategy should help you sleep at night, not keep you up, and that is what i think selling a call 20 months out would do--keep a guy up
Edited by beh 2/4/2008 22:02
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Marketing advice, should I or shouldn't I
