Soybeans Have Rallied off of three-year lows. Can the commodity keep going higher?
Soybeans Have Rallied off of three-year lows. Can the commodity keep going higher?
By:Tom Preston
Rain in Argentina has reduced supply and could continue to buoy prices
Excess supplies and reduced demand for biofuels had been driving soybeans (/ZS) down for the first couple of months of 2024. The commodity fell to its lowest price in over three years at the end of February but has managed to rally back over the last three weeks.
Heavy rain in Argentina has made it harder to harvest beans, and that’s helped to pull /ZSK4 off its lows. Any renewed demand might keep upward pressure on the old crop beans (/ZSK4) because the crop up north is still a long way from harvest.
That might be enough for a trader to consider a bullish strategy in /ZSK4. /ZS’s weakness has pushed up its implied volatility (IV), and its 18% overall IV and 35% IV rank make its options good candidates for short premium strategies.
If you think /ZSK4 might continue to rally or at least not fall too far in the next few weeks, the short put vertical that’s long the 1160 put and short the 1170 put in the April expiration with 36 days to expiration (DTE ) is a bullish strategy that collects a credit 1/3 the width of its strikes, has a 70% prob of expiring worthless and that generates $1.24 of positive daily theta.
Tom Preston, tastylive chief market strategist, is responsible for the brokerage’s trading strategy, client-facing trading software and futures trading products. He contributes to Luckbox magazine and writes tastylive's Cherry Bomb newsletter. He's been trading options since 1992.
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