time to buy call options

[gmj]

Charlie is it a good time to buy Nov. Canola call options? Or should we buy Soybean options.

[melvill]

gmi, would you be able to get a canola call order filled? My broker says that it's almost impossible. What does your broker say?

[charliep]

No comment other than to suggest you make sure you are sitting down when you either phone your broker or check the quotes on the internet. Stricker shock will get you.

A couple of questions.

What is your end objective in doing this? A lottery ticket in case things go crazy with a weather scare? I hate to advise spending money on calls when a manager has worked hard at locking in a profitable price.

The options expression is to sell volatility and buy stability. With the words of warning your broker will have about risk, it may be the time to actually be selling options. Again, the key issue will be to have a plan in mind as to what you are wanting to accomplish (options are the tool, not the end result) and a predetermined amount of risk you are willing to take.

A summer of volatility ahead. As an example, the loss in July soybeans has been over $1.50/bu. A 5,000 bu contract puts a financial tab of US $7,500 or Cdn $10,000 if someone bought the top/sold today. The thing that scares me watching from the sidelines is whether I would have made the decision to stay in (easy decision for me as I couldn't afford this level of margin call) or whether I would have let a stop take me out. Not an easy market.

[rain]

Your right Charlie. Marketing decisions are some time easier for managers without hedge accounts. Averaging up or down stops producers from turning hedge positions into spec positions. That seems to be the hardest concept for producers to get around. If the canola was sold $60.00 dollars ago buying a bean call is not a hedge but a spec move.

November 370 puts were $10.00 and $30 out of the money. Now they are $19.00 and know one bought them.

Basis might start to come in if sales rumours are true. That might bring in anothe $5-10 if we are lucky.

[TOM4CWB]

Charlie;

Hopefully some sales have been put on by farmers over the last few months on Canola.

On the risk management side it is now a good time to offset the risk of the hedge with a call... just in case it does not rain in the next few weeks...

This strategy has been the most sucessful of all my risk management opportunities... stick with the exact product you have, to buy the call... basis between beans/canola... barley/corn can change radically if we are short of production and the US is not.

Calls can be bought if a little patience is used... and a fair price is paid... think of how much the SPE premium was per acre... as an example. Options on the WCE are still a much better deal than the SPE was!

[rain]

Tom what is SPE Premium?