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2018 Soybeans: Lucrative Playground For Call Option Sellers?

Apr. 07, 2018 9:50 AM ETSOYB
James Cordier profile picture
James Cordier

Regardless of Chinese and Argentine News Stories, The US Could be Facing a Soybean Supply Glut by Fall

Soybeans have attracted a bit of media spotlight as of late with speculation over potential retaliatory tarrifs on US soybeans.

This in response to the US recent tariffs on aluminum and steel.

China slapping a tariff on US soybeans would likely be bearish for prices, of course. However, Chinese tariffs are not the big story in beans - at least for option sellers.

Soybean prices will already face an uphill battle in 2018 based on massive US and global supplies coupled with a seasonal tendency for weakening prices into growing season. This will likely be creating a high probability environment for call sellers this spring - regardless of any action (or non-action) out of China.

That doesn't mean a Chinese tariff wouldn't have an effect for traders.

Chinese Tariffs - A Factor for Call Option Sellers?

A Chinese tariff on US beans makes US soybeans more expensive for Chinese buyers. Thus, it makes sense they would shift a large portion of their business to Brazil. This would hurt US soybean prices to some extent. How much remains unknown.

The US and Brazil compete for leadership in the global soybean market. A Chinese tariff on US beans would likely shift a share of US exports to Brazil and pressure prices in the US.

In our collaboration with CNBC's Jeff Daniels on their soybean feature last month, we said we thought it unlikely China would target US beans. That doesn't mean we wouldn't like to see our clients benefit from a drop in US prices should such a tariff occur.(To read the article and comments from our interview, go to OptionSellers.com/CNBCsoy.)

If or when China puts a tariff on US soybeans remains an unknown. As

This article was written by

James Cordier profile picture
James Cordier is the founder of OptionSellers.com, an investment firm specializing exclusively in selling options. He is also author of McGraw-Hills The Complete Guide to Option Selling - recently published in it's 3rd Edition. James' market comments are published by several international financial publications and worldwide news services including CNBC, The Wall Street Journal, Fox Business, Reuters World News, Bloomberg Television and MarketWatch.

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