In the last week, December wheat futures have traded lower by 30 cents/bushel and are flirting with the $7 mark. As seen in the chart below, this level has served as support for the last four months. On every attempt to penetrate this level, buyers have defended $7/bushel. Past performance is not indicative of future results. Solid numbers like $7 in wheat, $5 in corn, $100 in Crude oil, just to show a few examples, can serve as not only technical barriers but also psychological levels.
The pressure of late, in my opinion, is due to the improved production outlook domestically and selling pressure from hedgers. However, that is only one side of the equation as strong demand could be a game changer in the not too distant future. In recent weeks, we've seen increased interest in wheat from SE Asia and China. This could be a longer-term supportive factor and to buy near what appears to be stiff support makes for a great risk/reward set up. Understand the lowest trade in December wheat in 2013 was just under $6.90 and the highest was almost $8.35/bushel. Current pricing is 12 cents or $600 (per 5,000 bushels) from lows and $1.35 or $6,750 from the highs.
Now for the trade…
Three different trading ideas:
1.) Sell December out of the money puts.
2.) Buy December outright call options or bull call spreads.
3.) Get long December futures with stops under the recent lows.
On Friday, the USDA reports planted acreage and this likely will be a market moving event, so tread lightly and recognize that a 20-40 cent ($1,000-2,000) move in either direction per contract is not out of the question. See below guesstimates ahead of the number.
*Data from Dow Jones
The report is out at 11 a.m. CST on Friday.
Risk Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the financial products herein named. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.