On Wednesday, October 10th @ 4:30 PM Eastern US, Carley Garner will be presenting a webinar on futures.io (formerly BMT) which covers Options Trading (specifically Futures, but it will be a broad overview). I've asked Carley to put together a multi-part webinar, so this is Part 1 and will just be "Basics - 101".
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The following 2 users say Thank You to Big Mike for this post:
FWIW I know this is not selling options, but I have a recommended trade for you. Buy Oct Milk futures (symbol DA or DC depends on where you trade.) at less than 21.20. Last trade was $21.00. They should expire (cash-settled) above 21.35. Settlement date is Oct 31, 2012. You make $20 per 1 cent.
I was a dairyman for 10+ years. I started trading milk futures 14 years ago. Have made and are currently making good money on milk futures.
There is a complicated USDA formula to determine the final price for the milk contract. 75% of the inputs are already determined for the formula. It is almost impossible for the final price to be below 21.00, But of course nothing is a sure thing.
BTW I just put 50 on for myself.
Last edited by ron99; October 4th, 2012 at 04:56 PM.
The following user says Thank You to ron99 for this post:
I'd not considered trading Milk before your post. After some research i found the picture below. It shows the changing milk seasonality. Do you also trade the options as well as the futures? It would appear now might be a good time to sell calls.
While seasonality has its place when things are normal, this is anything but a normal year for dairymen. Fundamentals this year will override seasonality.
Do not sell calls now. I have been buying futures. Prices will be rising now through the middle of Nov. And they may not stop rising then.
Because of the lack of feed, the high feed prices, and negative profitability of dairying, farmers are exiting the business at a huge rate. Production per cow will drop as dairymen feed less expensive grain. The cows will also milk less because the drought stressed corn silage will not make as milk milk as normal silage.
Dairy cows sent to slaughter have been 5-10% greater than last year. And that will only get worse throughout the US winter.
Prices will only stop rising either when they get high enough to slow demand or the new crop feed from next spring lowers feed cost and increasing feed availability.
Note, because of certain pricing factors I am lowering my projection of the Oct milk price to 21.25. I am projecting Nov to be over 21.50. The CME cash cheese trading that goes into Nov starts on Monday and goes for 5 weeks.
The current cash cheese price is greater than the current Class III futures price. And I doubt that cash cheese is going down now. We are headed into the holiday season when consumption increases. Cheese inventory is 5.8% less than last year and dropping.
There is not a lot of volume in milk options. If you are thinking of doing anything in milk options, sell puts. But do not go more than a few months out.
The following 2 users say Thank You to ron99 for this post:
New to the board. Great thread. I have sold options many years ago with full service broker, it did not end well due to listening to the broker!
Starting up a new campaign with IB, there margins are high but only discount broker in Canada that does Futures Options right now.
Im looking at selling CL FEB 65 PUTS Delta Apx .036
This is real interesting. I have just checked my IB quote for FEB 65P and it works out at $3342 for 2 contracts, but that includes 50% extra margin for being a pension account.
Now I already have a DEC 70/120 strangle on CL which is winding down, so I may have a bit of spare margin on one leg but not to that extent. Also I make the delta at 0.0239 which ties up with Rons figure. Could you recheck your quote Mark59.
I have been annoyed with the IB margins myself but after reading Ron's post earlier about leaving 2 x extra margin it got me thinking, maybe it is not such a bad thing. For example if IB margin was 2000 but OX was 400 and there was a 10% margin increase it would raise the IB to 2200 but what would it raise the OX margin to? If 600 that would be a 50% increase. Extra leverage cuts both ways.
So on reflection I feel more comfortable using 50-60% of available margin when using IB.