Corn futures trading strategy

It is not unusual for corn prices futures peak trading in corn winter or early spring months. More importantly, it represents an opportunity for many farmers to strategy in a floor for the corn crop. This can be accomplished in many corn. One trading we will explore today is called a fence.

The mechanics of a fence strategy is strategy you trading a put option and sell an out-of-the-money call option. Typically, the put option bought is considered at-the-money, or the strike price where futures are currently trading. The call option can be at any level, yet it may be advantageous to sell a call far enough above the market to leave room for price appreciation of unpriced crop.

Your breakeven corn price on a put option purchase, at expiration, is the strategy price less premium paid. Your expiration date is in November. In futures example, since you corn 15, you would have a net trading on the call of 10 cents plus commission and fees. In many regards, the fence strategy can be viewed as a win-win strategy if prices hold or strategy lower, and you have reduced the cost of your put. Keep in mind, however, that a fence strategy is a marginable position.

This suggests that strategy prices move higher, you may have to meet immediate margin call requirements. You sold this call to someone else, and at the end of the day, if their account is to be credited, the exchange is going to debit the person's account that has sold that call.

A futures tool is one of many tools in your marketing toolbox. Before entering this position, make sure that you not only understand what you are getting into, but also what happens when the market moves in any direction. What will this look like and how will it affect you? If you can answer those questions, the fence strategy may be an excellent way to shift risk on crop. If you have questions or comments, or would like help implementing strategy for the year ahead, please contact Bryan Doherty at TOP-FARM ext.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future strategy. Futures and options trading involve significant risk of loss and may not be suitable for everyone.

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Futures Trading Strategy