Tariff Talk Leads To Great Opportunity In Soybeans
Summary
- Trump's tariff war with China has depressed soybean prices.
- We have a nice entry on the September Futures at $825.
- We have a nice entry on the ETF (SOYB) at $14.50.
We still have the weekend to get past though and China WILL retaliate and it seems they've already started as no one bought our bonds this week at the note auctions. China is holding $1.1Tn of our Government's debt and they could begin selling it, which would quickly make it hard for us to get a good price at our own auctions and that would quickly drive up US interest rates but it would also devalue their remaining low-interest bonds - so it's a tricky move for them to make. Simply stopping purchases would hurt us plenty.
China is also America's largest customer for Soy Beans and Soybean Futures have been collapsing, down 15% since April and, if you believe in a trade deal, you can make money playing (NYSEARCA:SOYB) bullishly. Right above, our own President is telling the farmers not to worry because he will be happy to help them by buying Soybeans, etc. and handing them out to the poor and of course our President would never lie to farmers so I can't imagine why traders wouldn't jump on Soybean Futures - the September contracts are /ZSU19 at $825 and that gives Trump all summer to come through on his promises. Any takers?
As to SOYB, it hasn't been this low since, well, ever - as the contract began in 2012 at $25 and never really went below $17.50 until the trade war began so $14.50 is quite a bargain and, although it an be tough betting on Trump here, it's POSSIBLE we get a trade deal and that will hurt our hedges in the Short-Term Portfolio so, in order to hedge the hedges, a bullish bet on SOYB makes sense. For the STP, we can:
- Buy 50 Nov $14 calls for $1.10 ($5,500)
- Sell 50 Nov $15 puts for 0.95 ($4,750)
That's net $750 and, if SOYB goes back to $16 on a trade deal, those options will be worth $1.50 each for $7,500 on 50 100-unit contracts, which would be a 900% gain of $6,750 - not bad for an offset and our worst case is owning SOYB at 7-year lows and we can then sell calls to reduce our net $15.15 entry.
Have a great weekend,
- Phil
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Disclosure: I am/we are long SOYB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Positions as indicated but subject to RAPIDLY change (currently mainly cash and an otherwise slightly bearish mix of long and short positions - see previous posts for other trade ideas).