While short or long is only a difference in direction, why do traders have a problem getting short? Maybe it is the psychology; perhaps it is easier to cheer for an asset to move up rather than down. To be extremely successful in this volatile environment we think a long-only mentality is not the way to go.
Why I touch on this is: though we are bullish a variety of commodities, we have and will continue to suggest shorts in futures or put options when we feel a drop in price could occur.
Today marks the seventh consecutive positive day for Crude oil. The momentum is certainly up but this one got away from us. We will be looking for a long entry on the next retracement for clients. The good news is we did buy natural gas options for clients yesterday, prices were up by 6.5% today. On the highs today prices were against stiff resistance, because of this we suggested clients to buy November $4.25 puts against their January $6/7 calls on the close. On a 20-30 cent correction early next week we would exit the puts.
We advised clients to lighten up booking a partial profit on their March sugar calls today. We feel the recent OJ appreciation of 25% is too much. Clients bought January 105 puts today looking for a trade back near $1. Agriculture was quiet today, next week should be determined by the next few days' weather and if farmers can get in the fields. We suggest buying corn and wheat from lower levels. Additionally on a sell off in oats near $2.35, exit your December puts.
With all the hype, gold and silver ended the week about the same levels they started the week. Long term we are extremely bullish but short term who knows?
If the double bottom holds in Treasuries we should bounce; we advised clients to enter NOB spreads today. They went long December 30-yr bonds against a short in 10-yr notes. If they pick up 1 basis point on the trade we would exit.
Cattle look to be building a solid base. Let’s see how the market digests today’s cattle on feed report. To me it looks neutral.
As for currencies we feel the Loonie is due for a setback but would caution a large position being BoC meets next Tuesday. We got clients short futures and sold puts as a hedge. On a pullback we would expect a move to .9400 and then look for an exit door.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.