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No, I have no idea. According to my opinion this move is not driven by fundamentals.
On the one hand, I am convinced we will see 110 before the December contract expires. On the other hand, such moves can go further than your account allows.
Hi wondering why we dont sells puts deep OTM like 5 delta etc like we do with ES? is it because the premium received is JUST NOT worth the risk since there could be large continued moves as compared to ES
or it more a liquidity issue? or both of the above?
In this case Ron, how do you assess whether market's priced in the oncoming placement of the hogs into processing for Q4. I mean, if this increase is priced in, we should be close to or at the bottom, but if only a partial pricing in of this supply there still might be a chance of further downward pressure on hogs.
I guess what I'm really asking, probably wrongly, is how to find/assess whether market is pricing in the full hogs supply build-in until Q4 or not.
There are three reasons, which are connected to each other. I will explain the first two reasons for the ES puts. I currently hold the 2100 strikes.
During periods of low volatility I prefer selling puts with higher delta, as they seem to suffer less, if a sudden rise of volatility occurs. Vega per premium for FOTM options is significantly higher. Examples for the ESZ puts:
2100 (delta = 34 %): vega per premium = 0.00196
1900 (delta = 9.2 %): vega per premium = 0.00335
1700 (delta = 2.4 %): vega per premium = 0.00435
Margin per premium for FOTM options is significantly higher. Examples for the ESZ puts:
2100 (delta = 34 %): margin per premium = 1.9
1900 (delta = 9.2 %): margin per premium = 3.2
1700 (delta = 2.4 %): margin per premium = 4.5
Obviously there is an inverse correlation between vega per premium and margin per premium, which does make sense.
In dramatic situations it can be dangerous to hold a large number of FOTM options - their value might explode. The risk for a significantly smaller number of closer to the money options is smaller. This is of special importance for some commodities. In case of a severe desease among hogs or cattle, severe weather issues among grains or coffee or an attack of terrorists on the oil industry there can be major moves of the underlaying. This is bad news for every trader being on the wrong side. But it is even worse if you are short a large number of options with a small delta. Such events can happen during the weekend ...
Of course there is no free lunch, there are disadvantages selling options with a high delta. Most notably you have to use tighter stops to avoid getting into the money. And it often takes longer to achieve the target value for an exit in case the market moves sideways.
That is a question that nobody knows the answer. It will depend on what inventories are after the holidays and the amount of hogs going to market in Q1.
Rolled the SF C10.4 into the SF C10, taking a loss of approx. 15 - 20 % for the SF C10.4 . Will exit on a close above 10.
Yield estimates continue to come in significantly above average and at record highs. USDA already reported very large demand figures. South American production looks much better than last year.