Scaling your Trade Size 2/10/10
Crude was higher again today trading back up to the 18 day MA but failed to get back above the down sloping trend line. What was disturbing today was how little the premiums moved in options. Talking to the floor there seems to be a ton of option selling in recent sessions. If prices can trade above $75 we will be exiting the May calls spreads at a scratch or small profit and remain flat until Friday’s inventory#. If clients exit their Crude their only energy exposure will be long June RBOB. As of this post stocks are advancing but not enough to merit a long and we still want to see more in order to get clients short. As we posted yesterday on a trade higher we will be getting clients long June puts on the expectation of seeing the S&P closer to 1000 by summer. Clients are still trying to exit their May OJ back ratio spreads, we’ve opted to lower their profit objective being we did not see more reaction to what should have been a bullish USDA report. If we exit OJ we priced out July call exposure in sugar today. We have yet to move but we are thinking a 25/30 1:2 call spread for about even money. Whispers of the Fed tightening and the Euro-dollar got hit today. We suggest having short exposure via long dated puts and 2011 futures. We are going to wait for a resolution out of Europe before moving into NOB spreads with clients. Agriculture is a BUY; we expect to see wheat, corn, and soybeans grind higher so pick your poison. Our clients are long soy meal and corn. The June/April live cattle spread should come into -1.50 where we will be looking for an exit. Sideways action in gold and silver persists. It seems as though prices will remain range bound until we get news out of Europe. We’ve yet to make a move on gold with clients but have quietly accumulated light exposure in silver feeling more comfortable there. Silver to me is closer to where prices should be seeing March silver has backed off 22% from its highs as opposed to gold which is only down 13% from a record high. The Euro/Yen did not budge today; we are still looking for a stronger Euro and weaker Yen in the short run…stay the course. Clients scratched on the Aussie dollar as prices did not move as much as we anticipated. Our suggestion would be to continue to keep a large cash balance and do not be a hero; trade small!
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.
Tags: commodity, corn, euro-currency, euro-dollar, futures, gold, japanese yen, live cattle, options, S&P, silver, soy meal, wheat
