$12 July canola...

[farmaholic]

What am I supposed to be learning from the canola-bean oil chart. Why are canola puts still rising and bean oil's coming down.

Why 10 and 50. Approx equivalent value

What else?

[farming101]

The chart is tracking the value of a relatively equal (to start with) put purchase

10 bean oil puts tied to the July contract, 50 canola puts tied to the July contract
The 490,495,500 are the strike prices for canola
34 cents is the strike price for bean oil
The bean oil value dropped today because it took a breather from its sharp downturn as of late
Canola kept dropping so the put increased a little in value
There is also a conversion to CAD for bean oil with the dollar value at noon on the Forex
One bean oil put option gives you the opportunity to short one July beanoil contract at the 34 cents(60,000 lb)
One canola put option gives you the opportunity to short one July canola contract at the strike price (20 tonnes)

[farmaholic]

On your chart, when would you "get in" and what was the initial cost of each contract at the time?




Today:

A July $520 canola put is supposedly costing about $19 bucks.... so is that basically $380 to protect a twenty tonne July contract at $520.

43 cents a bushel.

So you would have to basically get $539 to break even(cover the cost of the put).

But if canola would drop and the put increase in value.... does it basically increase in value equivalent to the drop in canola price?

[farming101]

First pick a time to shop for put options when the futures values have been on the rise. Volatility causes option prices to increase. Quiet markets cause options to decrease in value.
The other part of the plan is old crop or new crop. Time is a factor. The further out you go the more premium there is for covering future risk. (a guy can always move the options around but that is more commission).
Initial cost on Jan 20 was
490 strike - 104(5.20/t)
495 strike - 124(6.20/t)
On Jan 24 the 500 strike had dropped to 126(6.30/t) so I included it.

To break even the option has to go into the money enough to offset your option premium plus commissions. So in your example you would be looking at July futures sub 500 to make anything off it. You have the right to sell a July at 520 but you would only do that if it's a money maker.

Options value increases or decreases are not one to one. Time is an important factor as well as how far in or out of the money the strike price is.

[Oliver88]

Canola slide appears to have paused for today anyways.
Up $3/tonne today.

[farmaholic]

101, are you ever doing these trades without physical canola to back them up or purely paper trading? If you're using BO contracts I think I just answered my own question.

How much of this do you do?

A big part of my marketing stradegy involves digging my heels in. I guess I will call it being physical with the physical. Funny thing is I alone can't make a difference. Like I said before....holding out for a nickel and giving up a dollar.

[farming101]

Used to do some fairly regularly but now hardly ever. Self insured for the most part
Best option trade ever was bean oil Dec 2008 contract

Options chart look different after today

[farming101]

Funny thing is I alone can't make a difference.

Got the lesson on that in 2002. Had just finished pulling the last canola swath out of a snow bank and figured poor crop, the price will continue to go up. Bin it. Here is what happened. Didn't go any higher for 5 years.

[sumdumguy]

Ethanol requirement cause bump in 2008?

[Oliver88]

Canola up slightly Monday and Tuesday.

12.04 July- basis

[Oliver88]

Canola up another 10 cents......

[farmaholic]

Will they let it get there ($12)?

[Partners]

If it gets to 12...will farmers sell? Or will some expert say 13? Maybe more?

[farmaholic]

I tease the local grain buyers about my "moving targets"....

Their job must get tiring at times, present a price a to producer who was on the record(verbal) saying he would be a willing seller at, then raise their target price. Free world open market I guess.