Formerly NE North Dakota, now NW MN | Well, hey, I mean, If corn runs up to 4.40, and that's the only position you have on, I'll admit you'd look like a genius.
Here's what I don't like about it. When you think about a person's marketing plan, short-call positions need to be accounted for on a bushel-by bushel basis, with no adjustment for delta. I.e. you sell 4.50 calls, if you want to be really sharp about hedging (bushel for bushel) you can't sell futures against those bushels. You can buy puts, but that's basically your only option. So, if you just short-strangle this thing, you've added a bit of profitability, but you done nothing about price protection. You've made bushels unavailable for hedging to gain that profitability, and the trade is still subject to volatility risk. If that market starts going "wildly sideways", the trade's still unprofitable.
Maybe a short strangle with an OTM put with a strike above the short-put would be a good option.
And I'll agree, there are a bunch of farmers out there who have higher risk tolerances that the short-strangle is a great call for. |
Strangle it!
