Grain Spreads: Option Strangles Into WASDE
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Commentary
The monthly WASDE report is upon us again the report will be released this Friday September 11th at 11AM Central. I want to focus on strangle opportunities in two grain markets that have just set records for having the largest net long by managed money for both futures and options contracts. They are corn at a net long of 431,062 contracts, and soymeal at 158,741 contracts per CFTC data released on 9/4/26. The background still remains for both markets with managed funds aggressively long on two fronts. First, two wars in key grain and energy commodity regions continue to escalate pushing energy prices, led by diesel to obscene levels. Second, while corn and bean yields continue to be debated, good to excellent condition ratings for both crops continue to move sideways to lower. This keeps funds in my view to defend their positions on breaks. They don’t want to be short currently. That said, commodity prices are a forward looking mechanism, and while the Chinese Premier is set to visit D.C. in a few weeks, I see no reason why new purchase agreements for let’s say soybeans aside from the 25MMT that has already been agreed upon, will be announced. We could get a corn or wheat surprise perhaps, but if there is no significant gesture or announcement from what is known already, grains could to a certain extent see a buy the rumor and sell the fact event. Plus, as soon as China leaves, corn and beans are staring the onset of harvest right in the face. Make no mistake, I want to be long grains deep into 2027 on many fronts, headlined by a strong El Nino in the southern hemisphere. However, managed funds net long a whopping 900k contracts heading into the 4th quarter, with harvest looming and the midterms in early November, we could see them step off the gas pedal and book profits. Strangle idea below. There is where we take both long and short exposure in the market, taking positions on both sides. Volatility play.
Soymeal
Sell the May 2027, 460/410, put spread. (Bull)
Buy the January 27 310 put. (Bear)
Collect 44 points upon entry, or $4400 less commissions and fees.
Max risk is $600 per spread plus trade costs and fees.
Margin -$502.00
Corn
Sell the May 2027, 600/550, put spread (Bull)
Buy the January 2027 530 puts (Bear)
Collect 20 cents or 1K upon entry less commissions and fees.
Max risk is 30 cents or $1500 plus trade costs and fees.
Margin: $584 per spread.
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Sean Lusk
Vice President Commercial Hedging Division
Walsh Trading
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Walsh Trading
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Walsh Trading, Inc. is registered as a Guaranteed Introducing Broker with the Commodity Futures Trading Commission and an NFA Member.
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