options and stategies

[chipper]

If one wasn't happy with price of barley or feed wheat and wanted to sell a call, as a stategy, what would this turn out like in 2004? Does any one have experience with this? How would this take place? Is there enough volume in our Winnipeg commodity exchange or should we be considering some other commodity cross hedge?

[charliep]

I actually like this strategy for more experienced futures/options market traders. It is another way of setting up a grain pricing order and being paid for it. Still need to follow the market if prices don't rise and want to hedge some later in the crop year. Also, need to have a plan if prices explode to the upside. Putting it another way, you still have to monitor this trade during the coming summer.

Volumes are always an issue on Winnipeg but the sell side should be easier. I would be encourging feed grain users to take the other side of this contract (buy a call) to protect themselves from weather markets this summer.

What are others thoughts/experiences?

[TOM4CWB]

CHipper;

Selling a call makes you SHORT the market at the strike price of the Call option.

Have a very good handle on your marketing plan.

Have a very good line of credit to pay margin calls on the option you are issuing.

NEVER get scared out of the market and buy the call back... what goes up must come back down... rolling the futures month may be needed for enough time to patiently wait for the market to come down again.

I sold calls in the spring of 96. It seemed like the biggest temptation was to liquidate the calls on the peak of the market... when the margin calls were going into six figure dollars. A farm cannot afford this kind of problem.

Patience paid off... we ended up making a good five figure sum.

I never did it again... there are much less risk intense tools than selling options to hedge our crop.