Re: Buying calls
Are you holding the short soybean futures as a hedge against crops in the field or is it a speculative trade with the idea of making some money?
I'm not a broker or analyst and don't have any special knowledge of how this works. My understanding is if you want a pure hedge you should hold the shorts until the contracts are about ready to expire or until you sell the cash, whichever comes first. If CBOT prices go back up you lose on your shorts but should gain back in the cash account so it's a wash.
Most of us of course don't do that. We end up "trading" the trade, trying to make money on both sides.
Here are some questions one might ask - there are probably many more.
What do you project futures prices to be at this fall when the contract comes due? Lower? Then hold and ride it down. Higher? Then one might want to take the money and run. But then the hedge is lifted and if soybean prices go on down one is on the sideline.
I don't have any crystal ball but my own personal guess is soybeans on the board will have a 9 in front of them in October, but maybe a low 9. I lifted one of my soybean hedges when they were floundering around $10 and made about $0.45/bushel on them. I wish I still had it on, but that's life. I have others still on and am holding them for now.
Weather, overseas production, politics and international trade all make this a hard year to have a clear vision of the future be we're all in the market if all we do is stand on the side and watch it (and our grain values) go up or down.
I guess I'm more or less thinking out loud and don't know if this helped you or not. I believe there are others on this forum as well or better informed than I so if they chime in give them a read.
Re: Buying calls
We always buy ITM calls, so say a 900 vs. your 1060, but that wasn't your question really.
Try this idea on for size.
1) We have full carry built in to the bean market, thus no need to buy Nov when Sept is 10 cents cheaper
2) The only chance for weather to ding yields (which frankly is way above 50:50 despite the current trade) is over by 8/25, again no reason to pay more for the Nov, Sept expires 8/25 so it would capture any recovery
3) I'd try to buy the 920 Sept call for .26 today, you probably have until the end of the month to get it done, so work the order, maybe do 25% at .26, and 25% at .22, etc.
This volatility provides some great opportunities to capture but it is real important to only do this once during a growing season. jmo
Unlike Jim, I see absolutely no reason to stay hedged past 6/30 at this point, especially if SX is under $9. It is quite possible it goes off the board at $8.20, but is also quite possible it goes off at $10.60, just have to see if the weather stays perfect (which is kind of a joke because it is not perfect so far). So, a lower risk way to do what you want to do is to just lift the hedge on 6/30 and wait to see what happens. jmo