Another round of ugliness in the futures markets but things can't go down forever. I am always amazed how markets loose carry as we go into a delivery month (witness the other contracts as March corn futures enters first delivery day). Does anyone have any thoughts about starting to shop for calls? What markets offer the best potential? What month and strike price?
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Time to buy calls??
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To follow up on my first question, a newsletter someone faxed me had ideas about something called a bull call spread for CBOT wheat. That is buy a July wheat call reasonably close to the money and sell one that is further out of the money to finance it. Picking on today (July CBOT futures closing at $2.70/bu), you would buy a July 280 for about 12 cents/bu and sell a July 330 (example only as you may choose different strike prices) for about 4 cents/bu. Your cost would be 8 cents/bu on the contract you bought (remember you are using the July 330 to pay some of the other one) plus commissions on two options trades(anywhere from 1 to 2 cents/bu for the half an option trade). You would be required to put up margin for the call you sold. Is this a good deal or a bad deal? When would the option pay out? What is your risk? Charlie P.
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