#1 My First Corn Sale!

by admin on April 15, 2012

My first corn sale happened on the 2 April 2012. 😀
It was a sale of a put option for July Corn as from past 4 years charts, it was observed that prices normally will tend to move up due to weather scare from January to May.

Why 2 April 2012?

On 30 March 2012, the prospective plantings report was scheduled to be released.
From my observation of past years charts, it seems like price movement will be quite huge during the release of the prospective planting report.
With this in mind, I will wait for the price movement to ride out on 30 March 2012.

*Note: It might be good to note that prior to 30 March 2012, July Corn prices had been dropping from a high of roughly $6.50 (26 March) to a low of $6.00 (29 March). (More information from AG Web) Therefore the prices of the put options had been pretty high. Example: For a 550 put option, the highest it reached on 29 March was 12.25 (12.25 * 50 = $612.50).

**Side note: Put options value goes up when the underlying price fall.

How I execute my first corn sale and which strike price?

On 2 April 2012 at 9.30am CT (SGT 10.30pm), only strike prices 550 and 560 are worth the sale (550 can roughly sell for $250 and 560 can roughly sell for $300). I decided to sell at strike price 550 for $275.
$275 is $25 higher than the last transacted amount. I intend to get it at a higher price since the price might fluctuate during the day.

As you can see from the table above, the maximum loss is $27,225 if July corn drop to $0.
The maximum loss that I am going to risk is only $5,000 therefore I decided to buy an insurance at strike price of 450 for $25.

This order was filled immediately once I executed the order. As for the 550 strike price, the order was still on queue by the time I went to bed.

The result?

Due to my greediness to collect $25 more……… The order was not executed. :(

On 3 April 2012 at 9.30am CT (SGT 10.30pm), 560 strike price was worth roughly $275 during the open and prices were dropping. Since the minimum I felt worth collecting was $250, I decided on a price entry of $250 for a strike price of 560. The order was immediately filled! 😀

Conclusion

I got my first sale of corn at $250 – $25 of insurance paid. Total amount that I will received if the option expired worthless on 22 June 2012 should be $225 (not inclusive of commissions).

Disclaimer: The author is not a licensed financial advisor and the information is provided for educational and information purposes only.
Trading commodity futures and options have large potential rewards but also contains a high level of risk and is not suitable for all investors.
Only risk capital should be used when trading futures or options.
None of the information provided constitutes a solicitation of or a recommendation to buy or sell any futures or options contracts.
Please seek the advice of a professional financial advisor before investing your money in any financial instrument.

{ 2 comments… read them below or add one }

JT April 18, 2012 at 5:08 am

Hi Charles,

What brokerage are you using? What is the commission they are charging? And is the Buying and Selling of Contract in USD$?

Reply

admin April 18, 2012 at 3:50 pm

Hi Jeffrey,
I am currently using Thinkorswim and the commission they charge is USD$3 per contract.
All contract are priced in USD.
Cheers,
Charles

Reply

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