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Northwest Iowa | To expand on Fry said sometimes. When prices were lower, I could say with a large degree of confidence that corn would fill any gap it left. Soybeans being in a high price range and being less professionally traded(the darling of the shoe clerk speculator) would attempt the gap but did not have to fill. So to quantify the response is that most markets will at least attempt to fill a gap. One of the older guys from Primghar, IA mentioned that corn will have 3 gaps to finish a move. Breakaway, midway, and exhaustion gap. Another thought for option buyers is that time is your enemy. As time erodes, the value of the purchased option declines. That degradation is more noticeable as you get to expiration. To offset the high cost of distant options (July, Sept, Dec) when buying options, one could sell a higher strike option to buffer the time loss. I'm still not very enthusiastic about buying the deferred options. Look at the Dec corn. closed at 3.83. The 3.90 call is .275. It is .07 out of the money. add all that together and you break even is 4.175. That is where you are actually long and will start to make money. The 3.80 is .03 and costs .3125. 4.1125 is the start for that one. Now look at the deep out of the money call, 4.60. It is priced at .1075 but is .67 out of the money. Your start of profitability would not come in till 4.7075. The delta is something else to look at. The delta is a comparison of the amount and option value changes vs the change in price if the futures. The highest delta will be in the nearby, at the money options. The delta declines rapidly for out of the money options and deferred time frames. I don't have it available but my estimate is that the 4.60 Dec call has a delta of around .15. The March at the money option will have a delta of .6 or higher. The net result is that one should consider selling out of the money options as part of a strategy. Hope this helps. | |
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Do all gaps get filled? NT
