canola call options

[errolanderson]

For growers wanting to replace their
cash canola sales and re-open their
price ceiling heading into the new year
. . . .

March canola $600 calls now trading @
$12/MT.

May canola $620 calls may trade for
$12/MT.

May offers 2 more months of upside price
potential, but March is more responsive
should canola rebound early in 2013.

Also, should canola futures continue
their decline, owners of calls would
only be at risk of losing their call
premium only. No risk of margin call.

Errol

[boarderbloke]

what do you think of JULY? $9.60 at $640. Is the value lost because of the large move needed to strike($60.oo)?
Hasn't JULY been the highest month in recent years, (carry short supply = ralley)?

[ajl]

I would favor May options as the highest
price has been in the May in 2010-11.
Also would have been the highest in 11-12
expect for the US drought. If 2013 has
better weather then it is likely the peak
will around seeding time as it
traditionally is.

[errolanderson]

boarderbloke . . . good question. July
offers super time as they expire around
June 20th. But the further out you buy,
the more 'time distortion' is in the
premium. You are buying for more time
value.

Should canola rally, July calls would
not perform as well as May or March. But
July offers 'time', but you would need a
sharp rally in canola for these to pay
off . . .

This is a very personal decision by the
grower. My personal feeling is the price
party for canola may be over by July as
South America will be exporting new crop
aggressively into the world market by
then.

But the world is a fast-moving, changing
place . . . .

[HappyFarmer]

boarder
If that is something that you are thinking about, i would look more at doing some sort of bull spread. You are going to limit your upside, yet probably have more value in what you are purchasing. Say buy a july 590 call @ 26, offset with selling a july 605 call @ 20, giving you a net cost of $6/mt. The max you will be able to make is $15/mt, but have a greater likley hood of at least getting your cost back rather than going that far out of the money.

[redbull81]

actually the max you could net would only be $9/T, in
my mind not worth it, plus you would have some
commission costs to take out of that as well.

[Gofer]

Errol
For growers wanting to replace their cash canola sales and re-open their price ceiling....

This strategy is not Canola marketing !!
There is already profit in $13 pricing.

This strategy is simply SPECULATION on a personal basis or Gambling $.30 of farm income and shouldn't be allowed as a farm expense when it is lost.

[Choice2U]

$13 at 25 bu/ac does not cover $250/ac inputs plus my debt payments thus I am prepared to risk a further $10/mt to speculate in hopes of paying more bills. I can't do this on any other product unless I go into the US market. Why should I get penalized to speculate on paper and another NOT get penalized to speculate on production if they hold it?