Corn (ZCK19): 21 March 2019

[TradingAdmin]

Today we look at Corn, the May contract.  This trade is quite an interesting trade.



I have been waiting for Corn for quite a while to turn around, start trading up.  We see a clear 1-2-3 low here.  If Corn breaks to the upside through the #2 point, then probability will favour an upwards move in Corn.  How do I get a part of that action?



This picture looks a little bit more complex than before.  Let me explain:

• The pink line is the risk profile if I choose to simply buy a Call Option.  Premium is $225, I cannot loose more than $225.  But prices have to move up at least at the trend of the pink line.  If prices fall below that line I WILL loose.  So if you are absolutely certain prices will move up and continue to move up, then this strategy offers the lowest risk
• The white lines are the risk profile if I choose to short a Put option.  The lower line drawn at a loss of $300.  Prices have to move up for me to make money, but I don't really care if they do not move up, even if they stay level I will still make my money.  Profit limited to the premium I received for the put option ($320)
• The yellow lines are the trade I am actually interested in.  I short two Call options at a strike price of 380, premium of $225 each, which is counter-intuitive.  Why would I short Call options into the face of a rising market?  I then Long the futures.  The position shown will be the result.  Look at my loss lines - they are even lower than when I short a Put.  Now look at my break-even line at the bottom.  Corn does not have to move up, even if it moves a bit down I will still make money.  My profit region is quite big.  Of course I can now also loose if Corn moves to high - but this being a daily chart, it will take a long time for Corn to move that high, ample time for me to get out.

Why do I choose to do it this way and not just simply short a Put?

• Because I can leg in as follows:  I short two Call options, can even short them in the money.  I then place a break-order to long the futures above the #2 point.  If Corn never breaks out pass the #2 point, my two short call options will make me money!
• If prices do move past the #2 point, it will create the trade as shown
• If Corn continues to move up, I can drop one of the two call options to create a Synthetic Short Put - the trade shown as white lines, but after making certain prices ARE moving up.
• if prices just goes up a little and then reverses, I take profit on the futures; I am now short Call options which makes money of the market goes down!

In other words, the strategy above gives me a great many possibilities to manage the trade according to whatever the market throws at me

[TradingAdmin]

Something I have not mentioned, but quite important:

I can also enter the trade the other way around.  Instead of shorting the two calls, then place a break order to long the futures, I can first long the futures and if it fails to move up to my liking, then short the two Calls.  The advantage of doing it this way is the Calls are closer to being In-the-Money, thus more expensive, I receive more premium for them, which widens that trading range considerably!

[TradingAdmin]

Here we go...

Our Load Shedding cycle started at 17:00 - for those who do not know what that is, it means the Power Utility cut electricity for the entire suburb and surrounding suburbs for 2.5 hours, they cannot produce enough electricity to supply in the country's needs due to poor management.  I am on my mobile phone now.

I monitored the live market session and my trade went as follows:

• I went Long 2 x ZC MAY19 Futures at 374.  (that is one tick above the high of the bar preceding the #2 point, a TTE entry for those familiar with this trading methodology)
  
• I sold one of those two futures at 275 1/2, taking $75 profit.  I then set my stop loss on the remaining contract at 373 (the profit I took on the one contract giving me a stop-loss on the second)
• At 377 I went Short 2 x ZC 380 CALL Future Options for 6 7/8 each, or $343.75 each (just took the market price for immediate entry)
• With the options in place I removed the stop loss on the Futures

My final position looks like this:



Now we wait and see...

[TradingAdmin]

Update:  Tuesday 26 March 2019



Profit of $327 !!.

This is a very interesting position!  We have made $327 in just 5 days on a margin posted of around $1600.  This is a return on investment of (327/1600 x 365/5) = 1492 % annualized.

So now the question:  Do you want to hold on for 30 more days, taking the risk in Corn, for possibly increasing your profit from $330 to around $600; or do you take the money and search for the next trade?  I cannot answer this question for you.  I do know what I will do.

[TradingAdmin]

On Corn you had the choice to take the $330 profit on the table, or hold out for more.  This is what happened with Corn:



There is still $100 profit in this trade, but to hold out any longer is foolish - the risk is too high that you will turn what was a winner into a loser.  So if you still in it, get out. 

Bit of advice:  I was taught to look at the annualised return on your investment.  If the market is giving you a huge return in a very short period of time, do not push you luck, take the money and get out of there, there are always other opportunities