Death comes to us all. Life's but a walking shadow | If you look at the Commitments of Traders you'll see that 8 or fewer traders hold 20% of the contracts. I'm convinced that these big trading outfits make their money selling options. Think about it, who are the people who buy options? People who need the insurance that the price won't go too far one way or another, namely the commercial entities and farmers. They're willing to pay a few dollars to transfer some level of unacceptable risk to someone else. Who are the people who sell options, traders who can gamble that the price will stay within a range for the premium. The thing about selling options is that the seller gain income if there is no or little price swing. It's practically guaranteed money. So what if the price does drift some, you don't lose money you just lose the premium, the premium offsets the drift in margin and the chance to make some money. If you do that 12 months a year and more often than not you come out far ahead in premiums.
But more to the point, a couple of years ago I took the actual price & volume data from the Oct price discovery period and built a spreadsheet that showed just how much the crop insurance industry would need to invest to keep the price within a certain range in order to prevent a payout. All they had to do is push back just enough to keep the price going in their direction It turned out that they would only need something on the order of $250 million in margin money to avoid $4-6 billion payouts. And if they simple rolled the futures they had to buy to support the price in most cases they could avoid any loss whatsoever by waiting until the market adjusted in the late winter & spring. Who doesn't have $250 million when billions are on the line. |
RE: SEP Corn Options
