Corn Upside with options
Last winter we rolled out a put strategy with the objective of “getting something for nothing.”* We looked at buying a full dated December 26 corn put spread giving us 40 cents of downside protection, and selling a short dated put to offset the cost. As long as the market stayed sideways, we were able to collect option premium on the short dated put, let that expire worthless, and own the full dated put spread for very very low cost (less than 4 cents.) The producers who deployed that strategy are now sitting on full dated December corn puts that have very little cost in them.
It’s time to look at that strategy now for the upside. If we are wrong, we have very little invested in these options. If we are right, we get to own something that the market is discounting right now, for basically nothing.* (We all know there is no free lunch. There is no promise of performance. Past performance is not indicative of future results. There is risk of loss in trading futures and options.)
We are looking at buying a MARCH corn $5.00-$5.50 call spread for a net cost of about 8 cents.
On top of that we want to sell a SHORT DATED AUGUST $4.95 call - expires 7/24 but vs the December underlying futures- for about 4 cents - bringing the net cost of the strategy to 4 cents.
If we stay below $4.95 for the next 45 days in the Dec 26 contract we end up owning 50 cents of upside vs the March contract that still has 210 days left (expires 2/19/27). And we will have appx 4 cents of cost invested in those options.
So how does this play out?
If we are “right” the market stays sideways/higher, with Dec closing below $4.95 on 7/24. Then we just own the March calls outright, and we are long the $5.00-$5.50 call spread.
If we are “wrong” the market rallies above $5.00 in the next 45 days and we get out of the options likely for a scratch. I think we would all be ok with >$5.00 corn in the next 45 days.
March 2027 Corn
There is risk of loss in trading futures and options. Past performance is not indicative of future results. Everyone should consider their individual financial situation before participating in trading futures and options. Give us a call if you have any questions.