Corn Vol About to Explode Again?
Corn Vol About to Explode Again?
For those of you not paying attention, despite the slow equity markets, there is a market where things are really moving around: Grains. Both SOY and CORN are getting smoked. Corn is down limit, and Soy is off as well. Yet, what is interesting is that, despite an apparent break out today, option prices on the futures and, subsequently, the ETF's are still pretty low.
Remember when corn went parabolic over the summer? One of the things andrew and I were pointing out is that at any point in time, Corn could sell off, especially if we think the harvest has been overbought. Today, we may be seeing that. Talking to Jack Scoville, he basically laid out that he thought the market has hit a top due to the bad crop, and those who have been holding are trying to get out. On the other side, there aren't a lot of major players looking to buy at these levels. So now the question we face, is Corn about to go parabolically down? Today's 2 dollar move is a HUGE move relative to anything in the last few weeks, and it is a clear break out.
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Looking at the chart, we can see that this two dollar move is going to cause a major uptick in realized volatilty, while IV is still low, actually, quite low, when we look how far it can go, especially when corn is limit down. I think we could see a snap back in Corn, or, like Jack said, we could be limit down some more. Either way, I think we are going to see HV run past IV levels we are at, and with that, a pull up in option prices. Take a look at the ATM options:
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With that in mind, the Oct 48/49 strangle for around 2.60 seems pretty cheap for a price of 2.60. We think that could really pan out into a very nice trade. If one wants to go directional, it makes a lot of sense to pay up and buy rather than trying to sell premium into this move. OI is very light, so there arent going to be a lot of great deals. But those who choose to trade this, might catch the traders napping on this one.
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He has been published in nationally on Yahoo Finance, quoted in the Wall Street Journal is a featured contributor for TheStreet.com. He also writes regularly for SFO, and OptionsZone, and is the managing editor for Expiring Monthly: The Option Traders Journal.
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