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Fort Collins, CO | I might not be the best person to answer that question. We're long done with the old crop, and we don't have those options modeled (so even if there's a little edge to be had in the options there, I don't have a way to see it). What I will say is this:
The risk in old crop is linear and therefore doesn't *require* non-linear tools (options) to manage properly. Adding options to a linear risk problem complicates what is otherwise a relatively simple picture. Arguably, unless you have a strong opinion about volatility, a good model and strategy for trading volatility, and the time to implement that strategy - you'd probably be just as well off to sell a delta-equivalent percentage of your physical roughly equal to whatever put you might buy. For example, if you have 100k bushels in the bin and are considering buying 20 at-the-money puts on the CBOT (roughly -0.5 delta puts), you might just sell 50k bushels of physical. The advantage to doing it that way is that it keeps things simple while achieving a similar instantaneous risk picture (and you save on commissions!). There are many tools available online that will give you option deltas. I can't/won't vouch for any of them, but they should at least get you in the ballpark. I'll add that I'm speaking in relative terms here, and I have no opinion or recommendation on the direction of old crop beans or the value (or lack thereof) of old crop bean volatility. Without having an edge in guessing price direction, or without having an edge in or a need to trade volatility, I'd prefer not to have exposure to either.
On the other hand, new crop risk is non-linear and, in my opinion, all but requires options to hedge properly - which is one reason we keep our focus there and trade on behalf of our clients the way we do. | |
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Weekly Corn Market Update & ask me anything
