Limit Down Corn and Soybeans - What to do

Posted by John J.Lothian

If you are long corn or soybeans and want to exit, but the markets are locked limit down, you might want to look at using the in the money Sep options which expire in a week to get neutral or spread the market.

For example, if you are long the November soybeans and want to sell, buy the Sep soybean 475 put. It is trading near 31 1/2 cents, and the Sep 475 call is trading near 1 1/2 as I write this. That means Sep beans are trading at about 445-. You are essentially selling the Sep beans at 445- for the cost of buying the time value of the 475 call.

However, the August beans are trading still trading, so you can use them to exit a soybean position too. Sell one contract of August Soybeans for every one of November you want to exit. You can then immediately buy equal numbers of August contracts and sell November contracts on a spread order. Make sure this is done as a spread on one order. That will liquidate your November position.

There is no August Corn, so you need to use the options to exit. Normally you could use synthethic futures (buying an at the money put and selling the same strike price call) to exit futures positions which are limit down. However, since the September Corn options only have one week to go this may be a more economical and manageable way to exit futures positions. I would suggest buying the September corn 220 puts. The 210 calls are trading about 1 1/2 cents, so that is your time value cost for getting neutral this way.

If you are afraid of the spread risk between Sep and Dec corn, you can always just buy Dec and sell Sep so you end up in a position long Sep corn and long in the money puts. You would end up with a synthetic call position.

Regards,

John J. Lothian

Disclosure: Futures trading involves financial risk, lots of it!

Disclosure: John J. Lothian is the President of the Electronic Trading Division of The Price Futures Group, Inc., an Introducing Broker.