February 15, 2022
We have liquidated our Short Eurodollars positions
Okay…The photo below, taken by my darling bride, of me proudly holding a 24 inch brown trout taken on a dry fly in southern Chile and seated in our self constructed VW South American honeymoon camper van, has nothing to do with commodity trading…but it is on my wall right above one of my most important personal trading reminders…so I’ve just thrown in the 1988 photo for the hell of it. I like big fish…and big trades.J
The “You will be wrong” thing is accurate, which, among other factors is why I am so often recommending the “Buy both sides” approach…
AND…the “You will be right” is just as accurate…as I DO get it right as well…and yes, many times, it’s after being wrong (or early) first…which leads to the second reminder below…in that, whenever I DO make a recommendation, it is only because I can see the potential for very large percentage gains…of many multiples really. Otherwise, with as easy as it is to be wrong in this stuff, it’s just not worth risking the bucks unless you are shooting for a BIG payoff.
And “BIG” IS the kind of hit we’ve made with the Eurodollar trade…BUT…It took a
while before it came around.
In fact, I got on this last March, and watched it do nothing (losing value in
other words) until September when I cranked up on buying puts again.…but when it
did finally start rolling, it became everything I’d been looking for…that is,
options that multiplied to being worth MANY times what we had paid for them…But
as of today, believing that most of the Fed’s rate increases have already been
built into the market, following an enormous Producer Price Index (inflation)
number this morning that did NOTHING for Eurodollars on the downside, and
“should have” I think,
I recommended exiting all of our short positions.
It is certainly possible that we might be re-entering this trade at some point, but right now, my primary focus is:
Short Corn, the Soybean Complex and Cotton,
which I strongly believe,
are ALL the next “One Good Trade”
Just the charts…Long term…and the options I am buying here…
For the most part, I recommend doing all of these markets using the both sides approach…But there is an argument for owning puts in all three (or four) with the knowledge that getting just one of them to go, and totally losing on the rest, will quite possibly still have you come out ahead. In other words, there are lots of ways to take these positions, but the one thing I absolutely recommend IS to treat them as a “unit,” meaning be sure to own puts in all three (or four) of them.
In the interest of brevity, I will only show you puts I like here in each of them…And one more time, HISTORY SUGGESTS THAT IF THESE MARKETS HAVE TOPPED, THERE IS A MAJOR POSSIBILITY THAT THEY WILL EXPERIENCE AT LEAST 25-30% DECLINES WITHIN THE SPACE OF THE NEXT 2-3 MONTHS.
And I’ll preface this by pointing out that during the past few weeks, there has been an UNBELIEVABLE amount of bullish rhetoric swirling around these markets…I mean, LOUD and persistent talk from every analyst out there about the crop losses in Brazil, Argentina and Paraguay…and of course Ukraine, one of the world’s biggest Wheat exporters…and then Crude Oil, where PRICE ACTION has convinced every expert on Wall Street that NOTHING can stop it from fairly zooming to and through $100…What I’m getting at is the NEWS lately has gone through the bullish roof and I’m going to say that we have reached that point where there are ZERO BEARS around…and that IS when this sh*t DOES go in the can.
IT’S DAMN HARD TO GET SHORT WHEN ALL YOU HEAR IS BULLISH, BULLISH! TALK…BUT THAT IS WHAT YOU DO HERE.
I think there is a decent chance that if any of these are working, they all will be…So you can do the math yourself as to the various ways that owning all four, or just three, markets can work out…including that if none of them work you could lose every dollar you have invested.
Buy all 4, you spend about $6150.
Buy Corn, Soybean Oil, and Cotton, you spend about $4100.
And for any of you true agriculture guys, do ask yourself when you’ll get a chance to be short at these sort of prices again. IGNORE all the bullish talk that’s out there. You KNOW that you have seen this set up before…and how you often you’ve looked back later and said to yourself, ”I knew I should have been selling…but didn’t.” I know some of you guys KNOW what I mean.
I sure as hell don’t know, but I do think this could be bigger than the Eurodollar trade. Get in touch if you want to know more…
All option prices in this newsletter include all fees and commissions. All charts, unless otherwise noted, are by Aspen Graphics and CRB.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Corn, Soybeans, Soybean Oil, Cotton