Pete Mulmat from the CME joins Tom and Tony to discuss the ins and outs of trading corn futures. As an introduction, Pete outlines the basic contract specifications of corn futures at the CME. Trading under the ticker /ZC, the corn futures represent 5,000 bushels of corn, with each tick size being ¼ of a cent per bushel and $12.50 per tick. At the time of airing, the initial margin on a /ZC contract was $1,650 with maintenance being $1,500.
Next, Pete breaks down the annual cycle that impacts the corn futures regarding planting mostly occurring in April. He notes that there is a sensitivity to weather during July through August, while the harvesting occurs in October and November. At the time of airing, the December contracts represent the new crop while the other months represent the old crop, which is already harvested.
When looking at agriculture futures, the differences between the front and back months is known as the “cost of carry.” This includes insurance costs, interest, and storage of physical grain. When near months are more expensive (inverted market), then we have a shortage of immediate supply.
Next, the boys take a glance at the volatility of corn and compare it to volatility on soybeans. Both contracts have a tendency to see peak in late June, which occurs because traders are uncertain about the acreage being planted.
Pete goes on to explain that grain markets move differently to the financial markets with respect to volatility. Volatility often declines with a falling price in the grain market. Additionally, put skew becomes cheaper than the call skew.
The guys go over the current situation of the corn market. Grain prices were down 25% while the crop condition was the best we’ve seen since 1994. Additionally, corn volatility was at its highest level since October 2013 (24.1%)
Finally, Pete sets up some trade ideas in the corn futures options market. He looks at two defined risk spreads, a short put spread and an at-the-money calendar spread. The three main benefits of using the options are risk management, margin efficiency, and flexibility.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.
© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved. Applicable portions of the Terms of Use on tastylive.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.