Call options on wheat

[ray]

At least one market analyst is advising growers to purchase July 99 wheat call options . Any comments from the experts ?

[Mufferaw]

Smaller carryovers at the end of 98/99, reduced northern hemisphere winter wheat acreage, the fact that wheat is at historically low levels all suggest the opportunity for higher prices this summer. Having said that, wheat prices are really stuggling to get anything exciting happening. Conditions have been very favorable for winter wheat in the US suggesting potential for excellent yields (offsetting the lower acres). Competition from the EU (back under US $100/t) and importers who are very patient in their buying have also been negative for US futures prices. With CBT July trading at 2.87 1/2, July calls are trading at about 10 cents/bu or about $500 excluding trading fees. Should you buy calls here? I am bullish wheat so I like the idea of owing calls. Having said that, my strategy would be to wait till the spring when premiums have potential to be a little cheaper. There doesn't seem to be anything really exciting in the short term that will drive wheat futures (or calls for that matter) significantly higher so you may as well be patient.

[Mufferaw]

What Jul 99 call strike price are you referring to?

[Mufferaw]

CBT July 310 calls closed today at 10 cents/bu. CBT July futures closed at $3.87 1/2. The cost of the call would be about Cdn $750.

[Mufferaw]

Oops. My 3.87 1/2 for todays CBT wheat close should have reade 2.87 1/2.

[Mufferaw]

Reply to Brenda : CBOT July $3.10 calls

[Mufferaw]

Charlie : Please explain how you derive at the $750 cost of the CBOT july 310 calls ?

[Mufferaw]

I used the 10 cent/bu CBT July 310 call premium times the 5,000 bu contract and converted to Cdn. dollars (based on $1.50 loonie per one collar US). I didn't include trading costs.