I had an interesting options strategy for canola. Before I suggest, it is important you read over and understand the following two statements (have the discipline to act on them as well).
1) If WCE canola futures prices ever goes over $380/t (or whatever your target price is), I will sell it.
2) The only way canola prices will go higher is if soybean oil rallies.
The idea is to sell (note I said sell so you are the writer of the call option) a May/July 380 call and use the money from the call to finance buying a CBOT soybean oil call for the same month (I will leave the strike price to you/your advisor). Because you have sold the canola call, you are responsible for margin money if the market rallies (increase in value of the call) and potentially could be short the market at values over $380/t (your plan anyway). If soybean oil rallies, the increased value of the CBOT bean oil call you bought would offset this to some extent.
What are other thoughts on this strategy? What are the risks?
An interesting idea I challenge everyone with is to come up with strategies and test them in this area. This will create some interesting discussion.
1) If WCE canola futures prices ever goes over $380/t (or whatever your target price is), I will sell it.
2) The only way canola prices will go higher is if soybean oil rallies.
The idea is to sell (note I said sell so you are the writer of the call option) a May/July 380 call and use the money from the call to finance buying a CBOT soybean oil call for the same month (I will leave the strike price to you/your advisor). Because you have sold the canola call, you are responsible for margin money if the market rallies (increase in value of the call) and potentially could be short the market at values over $380/t (your plan anyway). If soybean oil rallies, the increased value of the CBOT bean oil call you bought would offset this to some extent.
What are other thoughts on this strategy? What are the risks?
An interesting idea I challenge everyone with is to come up with strategies and test them in this area. This will create some interesting discussion.
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