After peaking at record highs about a month ago, corn has been under pressure. But as the growing season wears on and hotter weather is upon us, it seems a bounce is likely, and a bull call spread is a way to play that trend with defined risk.
December corn has seen pressure in the past month, falling from a high above $7.99 on June 27, 2008, to under $6 currently. The weekly USDA crop progress report on Monday, July 28, rated 66 percent of the crop as good to excellent, up slightly from 65 percent in the prior week, and above the 58 percent reading seen at the same time period last year. The trend usually tends to be for the crop to decline each week until the end of the growing season, but this year, it’s getting better as the weeks go on. This trend has lasted for about six weeks, but I think moving forward, there might be some slight deterioration. Hotter weather is expected through much of the growing region, and that could cause the market to rally a bit.
Taking the 50 percent Fibonacci retracement from low to recent high puts the market at $6.78 ½. The December futures are currently trading about $5.97 ¼. So I recommend buying the December corn 620/660 call spread, which expires November 21, 2008. Your profit potential would $2,000 (40 cents x $50) minus your commission costs, if the market meets our target near that Fibonacci level. Your cost on the trade would be $700 (plus commissions), so this strategy offers about three-to-one risk-to-reward ratio.
Feel free to call me with any questions you have about this strategy or others to suit your particular account size and risk tolerance. Ask about our special half-off commissions offer for new clients.
Phillip Streible is a Senior Market Strategist with Lind Plus. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com.
Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.
You can hear market commentary from Lind-Waldock market strategists through our weekly Lind Plus Markets on the Move webinars, as well as online seminars on other topics of interest to traders.
These interactive, live webinars are free to attend. Go to www.lind-waldock.com/events to sign up. Lind-Waldock also offers other educational resources to help your learn more about futures trading, including free simulated trading. Visit www.lind-waldock.com.
Futures trading involves substantial risk of loss and is not suitable for all investors. © 2008 MF Global Ltd. All Rights Reserved. Lind-Waldock, Futures Brokers, Commodity Brokers and Online Futures Trading. 141 West Jackson Boulevard, Suite 1400-A, Chicago, IL 60604.
