Rolling Out of Trouble...Or Into More Trouble?


With the recent surge in Soybeans, I thought I'd share with what I just did with some November Soybean Calls.


I sold some 1600 Calls last week, which with the 3x excess margin that Ron recommended, equated to about 18% of my equity (I like to target 15%, and I went a bit over on this one).

Friday the price of Beans soared 40 cents/bushel, and tonight (Sunday) it has risen another 45 cents or so.

My initial guess was that if on close of Monday, Beans stay up 45 cents, I'll still be OK with regards to the "Ron Loss Rule" (when increase in option price combined with increase in margin, takes away all your excess, it is time to exit). No need to exit yet.

BUT even so, I am not feeling good about the trade. My delta went from .04 to .12 or so - in less than 2 trading days. I'm feeling some heat.

So, I decided that instead of exiting the position completely, I would roll up to a higher strike price. My goal was to exit the 1600s with a loss, and sell enough 1800s to end up profit wise where I started (right after selling the 1600s).

I was able to do this, but at the expense of dedicating more margin to the trade (up to around 22%, from 18%). I guess there is no free lunch. I also am short more 1800s than I was 1600s.

Good news: my delta is around .03 now
Good News: if 1800s expire worthless, I'll still make money overall on the trade
Bad news: I now am short more 1800s than I was 1600s, so if things go really bad, losses will multiply more quickly.


Anyhow, I thought I'd share this with you, in case you find yourself in a similar position. Rolling to deeper Out of the Money options may be a solution, if you don't want to outright exit. I do suspect, however, that most times the outright exit is the best option.

I'm also short soybeans but didn't get in as early so I have on 1700s.

From the technical side we are currently in a band of resistance from approximately 1400-1500. I would anticipate that we will see some sort of pause in this area.

Near-term fundamentals remain bullish with high heat in the mid-west corn belt area likely to persist through the end of the week. Once we get into September we'll be in harvest season as there is a strong seasonal tendency to sell off during this period.

The biggest surprise was that both, IL and IA’s average pod numbers were even lower than 2012 making rainfall over the next 2-4 weeks very influential to 2013’s U.S. yield.

I just looked at the St Louis 10 day forecast. Hot and dry.

If I had S calls on now I would get out and wait for rain to put them back on.

Specs have 49,000 or about 25% less longs than they did in June. Even with the 20,000 jump from 8/13 to 8/20. So more buying is possible.

Thanks Ron. That seems like the smart plan. Rolling can be a good idea when the fundamentals favor you; however, the short-term pain may not be worth holding on.

I covered my 1700 calls this morning taking about an 8% hit on the account (largest loss for the year thus far). However, I freed up 35% of my usable margin.

I guess I'll provide the "hold on for now" viewpoint. I will exit if/when the margin and premium grow too large. Hopefully never.

I most likely exited too soon and I hope they expire worthless for you.

I most likely exited too soon and I hope they expire worthless for you.

... I hope they expire worthless for you.