COVERED CALLS IN OCTOBER SOYBEAN MEAL, WITH INSURANCE.
The grain market has been in a long squeeze all week with this morning's tariff announcement as the icing on the cake. However, now that the weak longs are out the market will probably recover to account for weather risk. Let's play the upside with covered calls, with insurance just in case the mania continues.
We like going long the October soybean meal futures contract near $350 and then selling a $350 call against it. To keep risk limited, and manageable, we also recommend buying the $320 put. The net premium collection for the trade should be roughly $1,300, this represents the maximum profit (before considering transaction costs) which would occur if the trade was held to expiration (about 100 days from now) and the price of soybean meal was above $350.
The maximum risk on the trade is roughly $1,700 and would occur if meal was below $320 at expiration. Soybean meal merely needs to trade sideways or higher for this trade to work out. In fact, if held to expiration the only way this trade loses is if bean meal is below about $336ish.
The margin on this trade (after the suggested adjustment) is: $574
The delta on this trade is: .30
The Zaner360 symbols are: ZMV8, OZMV8 C350, and OZMV8 P320
Let us know if you would like us to take this action in your account.
*There is an unlimited risk in naked option selling and futures!
