Matt McKinney's Options & Futures Trading Strategies Blog

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Futures, options and forex trading is speculative in nature and involves substantial risk of loss.  These recommendations are a solicitation for entering into derivatives transactions.  All known news and events have already been factored into the price of the underlying derivatives discussed.  From time to time persons affiliated with Zaner, or its associated companies, may have positions in recommended and other derivatives.


Options Play: Have Soybeans Topped Out?

Posted on 7/3/2015 9:22:34 AM by: Matt McKinney, Market Strategist @ Zaner. 312-277-0115.

Direct-312-277-0115, http://www.mmckinneyfutures.com/

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.

 

Options Play: Have Soybeans Topped Out?

With a pseudo doji formation on the charts and most of the fundamental news factored in have the soybeans put in a top?

 

Fundamentally, the soybeans made a correction after a rally of astronomical proportions. The August soybeans rallied on wet weather throughout the Corn Belt from a low on June 15 of $9.12/bushel to high on July 1 of $10.54/bushel. To put that in perspective, that $1.42/bushel move in 16 days would've made a trader who was long one futures contract of ZSQ5 about $7100. That is if that said trader was good enough to get in at the bottom (about $9.12/bushel) and out at the top (about $10.54/bushel).

On the current weather front, Hightower morning commentary said it best on July 2, " The dynamic of the market has not changed with wet weather across the Ohio River Valley over the next 5-7 days, although the heaviest rainfall has shifted to the south slightly which will benefit southeastern US crops. Cool temperatures remain a prominent feature in the Midwest for the 6-10 and 8-14 day models which will be favorable....". Not that I can trust any weather forecast from here to eternity. I am particularly skeptical being from Chicago, where the weathermen get paid to be wrong and the saying is, "If you don't like the weather, wait ten minutes because it will change...". That being said crops seem due for some good weather and soybeans can very resilient when all is said and done.

On the demand side, Ted Seifried the VP and Chief Marketing strategist here at Zaner Ag Hedge division, continues to harp about the lack of Chinese demand and how it could play a role in coming days and weeks. I couldn't agree more. We all know where we stand today on the supply side of Soybeans for the most part, but with no real demand from our number one customer how can prices rally from here?

 

 Technically, I have added my favorite technical indicators to this chart below. I have coined them the 10/20/50/BB Trend Finder. They are the 10 (red line), 20 (green line), and the 50 (blue line) day Simple Moving Averages or SMA's. I have also added Bollinger Bands or BB's (light blue shaded area) and Candlesticks (the red and green bars with the candle stick wicks, and on this daily chart each bar represents one day of trading). These few technical indicators can tell me many, many different characteristics about the market at a quick glance so I have them saved on my charts in MARKETHEAD, so they can populate on any chart I choose at the click of a mouse.

 

These indicators on the daily chart below tell me that August beans are in a "PRINCIPAL-TREND" up. This is the strongest form of a trend that my favorite indicators can show me. This occurs when the 10 day SMA (red line) crosses up and over the 20 day SMA (green line) as both indicators point higher and the market trades above the 10 day SMA. Now we have the 10 day SMA (red line) as the first area of support and then the 20 day SMA as the second area of support. The bottom line of the BB's (light blue shaded area) would be the final line of support on the daily chart below.

Resistance would come in at the top line of the BB's and since we are currently riding on the top line BB's I would consider this market as overbought technically. I would also consider it over bought because of how far away and how much higher it is above the 10 day SMA. Even though markets can remain overbought for long periods of time, I just don't see the fundamentals supporting that in this market right now.

The other important techcnical indicator on this chart is this pseudo doji bar on July 2 that can signal a change in trend in the near future. In fact the Wikipedia definition of a doji bar is the following- "doji is a key trend reversal indicator. This is particularly true when there is a high trading volume following an extended move in either direction. When a market has been in an uptrend and trades to a higher high than the previous three trading days, fails to hold that high, and closes in the lower 10% of that day's trading range, there is a high probability of a downtrend in the ensuing days." Finally, given the overbought condition and the fact that on July 1 the market could not close on the highs maybe the run is over. However as they say, "the trend is your friend."

I figured this out by putting my 10/20/50/BB Trend Finder on the daily chart and applying these indicators to the chart at the click of a mouse which I found at: http://www.markethead.com/2.0/free_trial.asp?ap=mmckinne , which is a web application that we have developed for our clients called MARKETHEAD where I get about 70-80% of all my research from. That means I get both technical and fundamental research from this web app and I am a veteran series 3 Broker of 15 years. So if I'm using it then maybe my readers should check it out. Yes? 

 

DAILY SOYBEAN CHART

 

 

OPTION PLAY:

For exact details on strategies, months, expiration dates, strike prices, and number of positions feel free to contact me at 312-277-0115 or mmckinney@zaner.com .

It is also important to note that I am not married to a market, but to trends. I believe that we are on the verge of lots of upcoming trends. So get in touch with me and I'll show you what could be right around the corner in terms of trending markets and how to trade them. There could be upcoming trends in the energies, indices, financials, precious metals, softs and more.

  

FREE QUOTE- "When you are good at something, you'll tell everyone. When you're great at something, they'll tell you." - Walter Payton

 

 

 

FUTURES, OPTIONS AND FOREX TRADING IS SPECULATIVE IN NATURE AND INVOLVES SUBSTANTIAL RISK OF LOSS. THESE RECOMMENDATIONS ARE A SOLICITATION FOR ENTERING INTO DERIVATIVES TRANSACTIONS. ALL KNOWN NEWS AND EVENTS HAVE ALREADY BEEN FACTORED INTO THE PRICE OF THE UNDERLYING DERIVATIVES DISCUSSED. FROM TIME TO TIME PERSONS AFFILIATED WITH ZANER, OR ITS ASSOCIATED COMPANIES, MAY HAVE POSITIONS IN RECOMMENDED AND OTHER DERIVATIVES.

 

FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERDLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STICKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT OPTIONS PRICES MAY ONLY MOVE A LITTLE.

 

THE LIMITED RISK CHARACTERISTIC OF OPTIONS REFERS TO LONG OPTIONS ONLY AND REFERS TO THE AMOUNT OF THE LOSS, WHICH IS DEFINED AS THE PREMIUM PAID ON THE OPTION(S) PLUS FEES.

 



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