Croker-Rhyne Co., Inc.

Main Page  |   Philosophy  |  Current Recommendations  |  Newsletter Archives
Contact Us

 

February 6, 2020

DO take the time to read and understand this…

I am resubmitting the data below as I honestly believe will never find a trade that has a better probability of succeeding. This does not mean it will work, but as I have written before, I will probably be doing this trade every year for the rest of my trading career.

Read this please…And if you do not “get it”, if the math does not make sense to you…DO call me with this in front of you. I swear, if you have the risk capital, and the risk tolerance, I believe you will do something with this.

Again, it does NOT mean it will work, but I will say that the historical statistics below lead me to state that I have never seen a better trade set up than we currently have in Soybean Meal…And I do mean “never.”

#1 Check out the “Percent change” column on this table detailing the rallies in Soybean Meal, from right now until July during the past 20 years…keeping in mind that, at today’s prices, a 20% rally would mean about $6000 per futures contract.

#2  Note that in 19 of those 20 years, at some point  the market made double digit percentage rallies…with 15 of those 19 years being AT LEAST 26%...with the remaining 3 being 19, 12 and 11%. Only one year, 2006, had no move that I would have considered a rally.

Rallies in July Soybean Meal Mid-Jan to Expiration

Year

Size of move

$’s per

contract

Percent

change

Month

Started

Month of

High Tick

2019

$45

$4500

+16%

May

May

2018

$83

$8300

+26%

Jan

March

2017

$37

$3700

+12%

Jan

Jan

2016

$162

$16,200

+60%

April

June

2015

$86

$8600

+29%

June

July

2014

$115

$11,500

+29%

Jan

May

2013

$157

$15,700

+40%

April

July

2012

$176

$17,600

+56%

Jan

July

2011

$37

$3700

+11%

n/a

n/a

2010

$69

$6900

+27%

March

July

2009

$177

$17,700

+69%

March

June

2008

$132

$13,200

+40%

May

July

2007

$58

$5800

+30%

April

July

2006

none

n/a

n/a

n/a

n/a

2005

$86

$8600

+56%

Feb

June

2004

$102

$10,200

+43%

Feb

April

2003

$42

$4200

+26%

Jan

May

2002

$47

$4700

+33%

Feb

July

2001

$40

$4000

+28%

March

July

2000

$30

$3000

+19%

Jan

May

 

To put my opinion in plain English: At some point between now and July, I firmly believe we will see AT LEAST a 20% rally in this contract…meaning about a $60 rally…or $6000 per futures contract…

And to capture that rally (if it happens) there are two steps I have to make:

One - Be there as a buyer somewhere close to the low when it is made.

Two - Stay there if/as the market rises…to NOT trade out of the position too early (this IS the hardest part of this trade).

A screenshot of a cell phone

Description automatically generated 

Why the 1 & 1 (buying units of 1 call & 1 put) is the PERFECT approach here to achieve Step One…Buying somewhere close to the low.

To begin with, there is NO way to know if a rally is going to start from right here…or from $20-$30 or $40 lower…Nor is there any way to know exactly WHEN it might begin…And believe me, with all the experience I have, I still know that I am NOT going to figure out the timing by reading the news and thinking, “I’ll know when the bull move is starting and buy it then”. NO WAY. Nor, with the million charts (literally) that I have studied, am I going to find some technical indicator that tells me, “THIS is it!” I don’t know when it the rally will begin, or even if there will be one, but I do know that the odds going back 20 years HEAVILY suggest that there will be one…And that it will be in the 20+% range…And the closer I can come to being a buyer at that low tick…the better…which IS what the 1 & 1 will allow me to do.

It ALL comes down to the math how option values change and following the two rules below.

Rule 1 – If the market goes the wrong way (down), and reaches the point where you are able to recoup 100% of your initial investment by selling both the put and the call, you do so automatically. You do not start thinking, “Let’s see if it will go further and I can make some money going the ‘wrong’ way”. You take the money and start over with totally new positions...at better price levels.

Rule 2 – Exactly the opposite of Rule 1. If the market does start going the right direction (up), you do everything you can to leave it alone…and let it RUN. Do NOT start thinking, “It’s gonna pull back. I’ll get out here and get back in at a better prices”.

And I would add that if we do get, for example, just a 15% upswing…believe me, you will not be crying about having “wasted” that money on the put...Conversely, if the market heads lower, you will thank your lucky stars that you bought the “defense.”

Nuts and Bolts – How this works

Here is the current set up and a few examples of how the numbers actually would work…And remember, the whole point is to have been a buyer at the lowest price possible…whether we are looking at it right here, right now (quite possible I think)…or whether it is $20 lower…or 2 months later. WE JUST WANT TO HAVE BOUGHT THE MARKET AS CLOSE TO THE LOWEST PRICE AS POSSIBLE…But I will reiterate, as much as history suggests, and as much as I believe this will happen, it certainly might not.

So…Here is where you start…Buying the “1 & 1”

A close up of a piece of paper

Description automatically generated

And if the market goes lower?
A screenshot of a cell phone

Description automatically generated

So here is what you would now be looking at going forward …

A screenshot of a social media post

Description automatically generated

So what happens when (if) the market DOES turn up from this 290 area? When it does make that last low tick that is going to be followed by a rally similar to what we have seen for 19 of the past 20 years? Which I will again caution, MIGHT NOT HAPPEN…But if it does, how do the numbers work from there?

A close up of a piece of paper

Description automatically generated

There are obviously an infinite number of ways Soybean Meal can move during the next 6 months, such as:

It just keeps going down…and NEVER rallies between now and the July expiration…maybe taking it down to $250 a ton, or basically to the lowest prices in a decade…at which point, I assure you, I would be stark raving bullish…This is NOT some throwaway commodity that the livestock of the planet can do without…And there is not ag product out there that can be produced at 10 year ago prices.

Or, it can just go dead sideways for the next six months…basically doing something that it has only done once in 20 years…which CAN happen and would easily mean losing 100% of what you have on the table…BUT…Six months sideways would likely result in option prices getting tremendously cheaper than they already are today…AND… after doing “nothing” for six months, my very strong opinion would then be that the odds of a MAJOR upswing would have increased dramatically…And I therefore would probably be thinking in terms of definitely increasing the size of my bet. But make no mistake, doing what I’ve drawn in below would lose you everything you’ve invested…

A screenshot of a cell phone

Description automatically generated

So either of scenarios could mean losing 100% of your investment (with the “never rallies” scenario possibly meaning you recoup something via the puts), but considering the very real statistics of what this market has done for the past 20 years, this is, to me…NO question…the best risk-reward situation I have ever seen. Again, this does NOT mean it will work…But for any futures trader who has gone through all the historical data here, and has been able to follow the math of how options do move…and does have the RISK capital to take the trade…I just can’t imagine NOT doing this…This may end up being a loser, but I can honestly say, again, that I have NEVER seen a better trade. Period. And believe me, I do not make a statement like that lightly.

Here are the real numbers at today’s close again.

A screenshot of text

Description automatically generated

And here’s the long term…

A screenshot of a cell phone

Description automatically generated

Give me a call if you are interested or want to understand more about what I am doing here. And by the way,  I have to tell you that Soybean Meal is probably the LAST market among ALL the agriculturals that any analyst would be recommending as a buy. For real.

Thanks,

Bill

866-578-1001
770-425-7241

All option prices in this newsletter include all fees and commissions.

FUTURES TRADING IS NOT FOR EVERYONE. THE RISK OF LOSS IN TRADING CAN BE SUBSTANTIAL. THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THERE IS NO GUARANTEE YOUR TRADING EXPERIENCE WILL BE SIMILAR TO PAST PERFORMANCE.

The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Soybean Meal

 

Main Page   |  Philosophy  |  Current Recommendations  |  Newsletter Archives 
Contact Us