August 28, 2013
The Soybean market had a “quiet” day today, closing just a few cents higher, and I couldn’t help but notice a good deal of sentiment along the lines of, “If it didn’t go up big again today, the weather must not be that bad”. The truth is, however, in the most rip roaring of Soybean bull markets, there are MANY days when the market is down…and as a trader, you absolutely cannot assume that lower closes are even remotely a sign of price weakness…
Just as one example, in last summer’s drought influenced market, we saw November Soybeans trade from $12.45 to $17.89 in the space of 65 trading days…And while that rally amounted to a fairly stout,$5.22 ($26,100 per futures contract), relatively straight up bull move, fully 28 of those 65 trading days had LOWER closes.
I may be dead wrong, but from the various commentaries I have seen today, my sense is there are a lot of people who are maybe asleep at the wheel…Soybeans have been, and potentially still are, in a rocket mode, yet I still see no sense of “urgency” in the analytic media…Sure, there’s a good bit of, “If it stays hot and dry, they COULD go up a lot”, but I have seen very little opinion saying, “GET ON NOW! They’re headed for $18!” (or the like). In fact, the majority of what I’ve seen has been, “Sell them now”, or along the lines of, “If it rains, this stuff is will drop $2 in nothing flat”. While this may be true, my point is, there are NOT a whole bunch of people hopped up on the long side.
As I wrote yesterday, my experience is, when you see something like this maybe beginning to happen, you just go with it. You get on, define your risk, and see how far it can go…which can be a LOT, or a little…or straight back down. For my money, I am on it here. I am buying every day (with “insurance”-see below). My intent is to stay on it until it fails miserably, or, I DO see a whole bunch of talking heads and traders getting EXCITED…or maybe see CBS News walking through fields of dying soybean plants…
As I frequently remind myself, in today’s hot money world, there really is now telling how big markets can go under the right circumstances…and as I also noted yesterday, I firmly believe that one of the biggest, most dynamic events we ever get in futures is a weather market in Soybeans.
Maybe I’m wrong. Maybe I’m right. But I am not on the sidelines…I see this market as going somewhere BIG, one way or the other.
Here’s a very simple approach that I think makes tremendous sense at today’s levels…And I strongly recommend this strategy of owning some options going opposite your opinion…puts in this case…such that if the market does go the “wrong way”, you DO stand a very good chance of getting back 100% of what you put on the table…Conversely, if it does make the sort of upside move I think possible, you will be more than happy to see the puts totally evaporate in value as the market moves dynamically higher…
Give me a call if you think this idea, and these numbers (what it’s really all about) make sense…Sooner the better is my guess…
Maybe I’m off the mark, but if this thing IS going, it ought to be going pretty much right away…I’d also add, the last thing you want to do in this stuff is wait until you are just “dead certain” you are gonna be right…My experience is, the best trades are often the ones you like, that you can see…but they still make you a little nervous. When you jump in a market, and “know” you’re going to score, you are usually too late…and dead wrong.
The author of this piece currently trades for his own account and has financial interest in the following derivative products mentioned within: Soybeans