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Hedging Commentary for 7/5/16 & 7/6/16


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Attention Corn & Soybean Producers:

In my opinion my strategy is the best I have seen since I became a member in 1976 trading corn and soybeans for my own account.


Are you tired of listening to the same BULL ****, and services that do not have a plan if the market goes down instead? Hedge means to take risk off the table, and my service has all producers 100% hedged and they do have most of the upside unhedged (if we can rally for whatever reason). Hedge with a Pro and option expert who has been trading grains for 40+ years. My hedge service is in its 8th year.

Hedging Commentary

(Read 7/5/16 first)

7/6/16:

Grains: If you do not know what the price will be next week, but most importantly at harvest, the good news is now you know how to take advantage of the market going up and not needing to pick the top, you can make more money no matter how high it goes. You also know how to protect yourself and capture new income, in case the market goes down by expiration. So you continue to improve your income before it goes down, and you keep some upside always open and can capture 65 to 80% or more no matter how high the market goes. Bottom line: you do not know what the market will do, but you know what you are doing and why! Think about it, you have no clue about prices at harvest, but you do know exactly what you do when you do it, and the reasons you picked the strikes you did. You know exactly what you are doing. Unhedged does not know what the market will do, but even worse they do not know what they are doing.

If you are new and kind of felt like you missed something as the market rallied, but now are happy to have a hedge when at contract lows, YOU are the old lady mentality I talk about (always know who will win once the game is over, but never before the game begins). Once you can see a problem and call it what it is, only then can you fix a problem. If you do not think you have a problem, you will not be able to fix it.

New subscribers should have learned something about themselves after learning the basics of my strategies, approach and mindset. I can lead a hedger/horse to more income/water, but I cannot make them drink. Old subscribers will tell you that the faster you accept what I do, the better it will be for you, and they will tell you that in time it gets easier to want the one in the hand instead of two in the bush. This is the first year of the rest of your life, and whatever you learn now is your foundation, and you will improve from here at your own pace.

All of my producers are self directed, and that is the mission of my service too, I never make decisions for anyone but myself. I tell you exactly what I think and why, and most of the time tell you what I am doing or want to do, so when you want to ask me “what would you do?” I make that perfectly clear at all times. So it is up to each of YOU to make decisions for yourself. You know what I think and do, with that you should know if you make a plan and execute it, YOU know what you are doing and why. You can take what I say no matter if you are a bull or bear, and take my stance into consideration making your plan. It is the same thing no matter what year, and in this case I have been selling resistances, and almost pleaded my case for capturing more money by at least raising the put, and selling a call spread. I have two new producers within the last year who have soybean hedges and both only sold $.60 call spreads initially, neither sold another call spread since the original hedge, but one at least kept raising his put up $.20 at a time for $.03 to $.05 each time. The other has been sitting on his hands and has done nothing but so far watch the market go up $2. As I say every year, watching high prices are one thing, capturing it is another.

Both had asked in the past “what would you do” and even though they should know the answer by reading my daily comments, I answered in my service and personal email. There are two important factors that are in play, that every producer of mine has gone through, but most are 75% or completely get it, 1. They are more concerned with making every penny on a call spread with prices that have not even been seen this year, than the 30% or more they could have collected and the upside from the long put up to that new call spreads sold, and 2. They do not want to send in margin money even though after you sell that call spread you would want to see the market limit up for 10 days in a row (as long as you have a crop). New subscribers come from a world of “it’s never enough”, to my world as a trader who lives in the reality of the last trade price, and what can I do to lock in some profits. I am sure all of my producers who were with me in 2012 and got on farm $8 or more for their corn, and $16 or more cash for their soybeans, would have really liked to send in another $500,000 this year too. Record profits in 2013 too for almost all of my producers, and they had protection the entire time if and when it did come down. Same as this year, except for the late hedges by those who had enough with the “big names” who hedge like losers, with losing strategies, losing mindsets, and losing foundations, you got $4 or more a year ago when you hedged 2016 and have had protection as you pursued higher prices. No matter where you started your soybean hedge, even now you can improve income since your last hedge. I have always said, and my subscribers for a few years or more will say, they know much more than “anything out there, services and gurus included”, you know what you are doing and why, and need nobody except for the charts, and all the things you learned to be self directed. I sell knowledge, and never say or use the word “hope” in my thinking and never say that word in my service.

Lastly on this subject, I always tell you what I would do to improve my hedge, but it is your decision to do what is right for you. I might want to sell a $1 call spread and you might want to sell a $.60 spread, or no spread at all. If you want me to make a decision for you, I never do that; YOU must make your own decisions. Otherwise, when the market goes up I am your “whipping post”, you would think that you would not have done that if not for me, but when the market goes down the old lady in you will take the credit for doing it. My service is 100% geared for those who ARE or WANT to be self directed. As a CTA, I get 20% of new income, and a 1% management fee, and even if I was getting that for directing you, I do not want that job. I have a service I am proud of, because I am able to convey everything that works for me as a trader for 43 years. And the producers who clear their trades through me, get the best fills probably better than what they could do executing it themselves as a local on the floor. I earn every penny the old fashioned way, “I earn it”. Look at how much commissions I could have made in commissions if I did not talk people out of buying or reducing corn call spreads when above $4.30 for $.13+, and now those spreads are worth less than $.02. Green light now to buy those spreads because they are CHEAP. I always say what is the right thing to do for my producers and service, because in the long run it is also the right thing for me too.

I know what I want to bet on, and although the strategy is one size fits all, my producers could be bullish or bearish more than once every few months, and each must make decisions as to what is the right thing for them. Margining because the market is going up I look at like 2 bank accounts, and every time I send in $100,000 I know my ground/bin is making at least 65% more than that of whatever the market rallies. What IS the right thing for everyone is when the call spread get so cheap, buy or reduce it, because all you leave on the table is the few cents you pay. It IS also the right thing to do something to capture more income AFTER the market rallies in part or aggressively.

I am still short soybeans, I did take a shave and a haircut on the minimum just in case the market can rally to a resistance number and I can sell again using different strikes. My trade idea continues to be the same as when I started to sell the resistance levels, which are soybeans, will be below $10 by expiration.

When I say “prices are fleeting” one or more times a year, it is because I know that to be a fact in my first year as a trader, let alone after 43 years. Long time subscribers now know that for a fact too, new subscribers should know that by now too. Look at the corn market, 2 weeks ago you thought I was crazy for continuing to have in my comments “in 2010 corn prices got to $3.24”, well today July corn came $.10 from that price. Learn from my wisdom; learn from writing down your thoughts and ideas in a journal, and what works for you, and what you do to sabotage yourself. Now many of you who wanted their upside back when above $4, now can sit back and feel what it is like to be long below the strike where your protection runs out. If you wanted to be long above $4.30, you should really like to be long near $3.40. If you wanted to be long above $4.30 but not comfortable to be long at $3.40 two weeks later, look in the mirror, THAT is the old lady mentality.

Are you writing down YOUR thoughts as to where the market will be? How are you doing? No I am not asking you for me, I am asking you to look at the reality of your thoughts and the date when you thought that. Put your feet on the ground, and write what you think price will be this Friday on the close. It does not take long to do, and if you do not do this, you do not want to see the reality of your thoughts.

Many producers reduced or took off more than 100 2017 and reduced 2016 corn call spreads too. Most paid $.03 or less for offsetting/reducing $.80 or less corn call spreads. Most have protection down to $3.30 or lower and some are selling some $4.00/3.80 or $4.10/$3.80 put spread to get upside back that way leaving a few cent on the table and becoming long above $3.80 instead of reducing $4.40 and higher call spreads.

Crop progress shows about the best corn rating for after July 4th I can remember, if this continues we could see 170+ BPA, if Mother Nature continues to provide near perfect conditions. All crops in this crop progress report looks great too!

Producers bought August wheat call options back for $.01 or less, and if it rallies they are in position to sell another call strike at a higher price for more money. If not, a penny this time, a penny a few times more, and then like the corn puts, for $.01 or $.02 is now $.50+ “in the money”. That is 50 $.01 spent on buy backs, who is the player and who is the casino? Buying call spreads for $.13 that could be worth $.30 is a total player, I am the casino, and will take the opposite side of the players when the odds are completely in my favor. Like in the corn, it could have gone to $4.70 and I would still make money being wrong by being long my bin/ground, those who spent $.13 would have needed $4.83 on expiration just to get their money back (for the $4.70/$5.00 call spread).

This is no place to sell wheat, but I do not catch falling knives without a past significant chart level to bet on.

I want to continue to sell rallies in soybeans, reduce corn and wheat call spreads down here, and wait for the next opportunity.

Remember or please scroll back a few weeks until now, I said the report would be volatile and no matter what it said it would mean nothing when we get back from the July 4th weekend, I said all would be just practice for July 4th and thereafter. I told you high price and good crop conditions would not sustain high prices, let alone the funds long about 240,000+ beans and corn at the time.

7/5/16

Grains: It took corn exactly 2 weeks to go from the 2016 high to the 2016 low (contract low) losing about $.90 in the process. It took wheat 3 weeks to go from its 2016 high to make new contract lows losing almost $1.10. “Prices are fleeting; capture what you can when the opportunity “presents” itself”. What about the beans? Ask yourself that, where do you think prices will be on Tuesday close, and next Friday. Keep it real. How did you do guessing this week? Mindset: trading and hedging as well as life it is a mindset, and it starts with half empty or half full. I can give my numbers to 100 people, I can have the exact high and low of the day, bulls and bears could make money that day, or both lose that day, and it is not the numbers that make money, it is how well you use them. I take credit for the best numbers for over 40 years, but traders and you the producers must take credit for what you do or not do.

Mindset is what allows you to succeed or fail. Knowledge is worthless if you do not use it. Greed is what hinders success and can lead to failure. Greed is the mindset of never enough, and more worried what you might make instead of worrying about keeping what is now in your hand. Most are in a mindset that sees the world through their eyes only, and that is a subjective reality that although might be far from the truth, it is the truth to them. But when you think and say corn is worth $4.00 or more right now, in your mind that is true, but the reality is ALWAYS the last trade price, that is always reality no matter what you think.

I can and continue to teach you what reality is for me, from mindset to money management and charts and the strategies in between. Everything I do, think, and why. Nothing has changed for me in decades. I have producers who have been with me from the start, and I witnessed the struggles on the way to totally accepting the reality of capturing what you can on rallies when it is cheap to do so, and more than willing and wanting the market to keep going higher. They understand and are happy to margin their known maximum risk if the call spreads go completely in the money, because they also understand they will make whatever price above their long put until the call sold in the calls spread, and also realize and happy to be unhedged once again above the call they are long. New subscribers less than a year will find it hard to leave anything on the table no matter even if a $.60 call spread and the market is $1 over the call spread. If this was the last day it was a windfall profit hedge, especially it does not matter if you were bullish bearish or both at one time or another. You must also realize that if you did not have the desire to do things for yourself, instead of hedging with me that day, you would have “sold” or “hedged” a different way, and that way including the gurus way you already have learned what does NOT work. Nobody who was successful taught me anything, I learned by watching those who “busted out”, I knew what they were doing lead to failure, so I learned what not to do.

My common sense lead me to know the opposite of wrong is usually right, (in the cattle pit clerking for a year with the biggest floor brokers at the CME at the time) I saw what fails watching the new and old “locals” (members who trade on the floor), so I knew what might work. The biggest failure even if people traded a few years successfully, was they lost way too much of their account on 1 idea. It was not what they made; it was they got killed on 1 idea. That usually came with the unimaginable happening, and they were on the wrong side of it and had no plan to stop it. No plan, they planned to one day fail, and market conditions every few years seem to provide the unimaginable one way or another. If they had allocated a portion of their money to the idea no matter big or little bet and lost, next trade. But if you lose your account you lose your ability to trade and no longer are you a trader. I always say, what I do not lose is the same as making money, and when I am losing I trade the next idea smaller than the previous idea that lost.

It is easy to be the 99% who lose, easy, just look at the producers around you year after year; THEY are the herd, same as speculators who make the 99% crowd. Year after year, I remind you that trading is gambling and should be looked at as entertainment, something you enjoy, and you do have that 1% chance of one day becoming a professional. Just like sports, if you practice enough you might just get good at it. $50,000 golf clubs will not swing the club for you. I would rather have a loaner bag of clubs, and a good mindset, than the best clubs and not be focused and especially if I am not sure what clubs to use in every situation. MINDSET. Successful trading must have the tools I speak about (and whatever works for you from your past), and the discipline to do it, and execute your plan. Producers who hedge are reducing the gamble, not taking on a gamble like a speculator. Hedging using my tools makes you the casino getting the odds, not the player trying to beat the odds.

I would rather speak about mindset than the report or BS that everyone seems to be selling. You cannot predict the price on Tuesday, or Friday, let alone at harvest. Is that real to you? If you do not want to be “Mr. Perfect” after the fact, write down today’s date, and your guess of prices at harvest. Whenever you think differently write down the date and the change in price that you guess. This will keep you real. If you do not do this exercise in reality, you do not want to see what your reality really is. If you do not write it down, you will become a fisherman, and the fish keeps getting bigger, and you will always know what the market will do after it already has, but never will say what it will do BEFORE the fact.

With that said, get real, sit down with yourself and make some business decisions based on the protection you need and the upside you want, that is the original hedge, and can be changed/morphed whenever you have a cheap opportunity or you feel the need. AFTER the market moves significantly one way or the other your plan should be in place to reduce the upside on breaks, and capture something according to plan if it rallies. What strikes you choose should reflect your thoughts and gamble. No plan, well you see how well that works in corn and wheat, soybeans are next unless we get a shortfall. I do not bet against normal, normal happens more often than abnormal, so I the casino always goes with the odds in my favor, or I do nothing.

New subscribers should have captured something or at least got more protection cheap on this rally, too late for now in corn and wheat, but soybeans have more downside to lose than what looks to be a reasonable objective if it goes up. Corn and wheat breakdown was taken advantage of by producers reducing their short corn calls CHEAPLY the last 2 days. Those who wanted to buy when at $4.20+, better reduce at least some of those call spreads now; otherwise they like to still run with the herd. Ask yourself, if you wanted to buy when at resistance, and do not want to buy it at support now, do I still want to buy rallies and sell breaks? Actions speak louder than words, your hedge is a start, but you still have the emotional mindset of the herd, not a professional gambler/trader. I want to buy breaks, and sell rallies, and use stops or known risk strategies where losses are limited and known.

New hedgers who have a problem with what they might not make if the call spread is fully valued at expiration, maybe because they lose in the hedge account as their bin/ground gain in value, even though they make money from the long put to short call and long unhedged above the spread, are players betting long shots. Ask yourself, you do not want to do a new 4 way above your original hedge, or do not just want to roll up the long put to capture 65 to 80% all the way up as high as the market goes, what is your plan if the market goes down instead? What is your plan? People who had a sell order in corn at $4.50 and was $.10 away from being executed/sold, what was their plan if it went down instead? Now they are looking to sell, where you are looking to buy/reduce, but no matter up or down you KNOW the put protection you have until expiration. What does the unhedged have?

Every year I talk about unhedged producers as being gamblers, and they mask the gamble to their wives that “it is a part of the business”, but that is NOT TRUE after you have learned some of what I teach you, I teach you protection is more important than rewards, without protection or a solid plan, you ARE the 99%. I am still standing strong, no changes in decades, always looking to improve, I would pay you handsomely if you can provide knowledge to improve anything I am doing. I would give you 100% credit too, and be tickled pink if you said it was my foundation that allowed you to discover an improvement to anything I do. I cannot fix something that is not broken, my mindset, approach, and strategies works for me, and should for you too. Like the numbers, YOU are in control of what YOU do, and not do. Nobody to blame or take credit but you for your abilities to have a plan and follow it, I only take credit for teaching you everything I know that applies to trading.

All the spin in the world will not help answer the question of “how high is too high, and how low is too low”? All the spin is just that, spin, and teaches you nothing, but spins the what if, and has no plan up or down, risk for reward, just spin. Our “what if” is baked into my 4 way hedge strategy” and nothing else is as cheap or compares. They (services, brokers, and people selling their opinions) think their objective for producers is get more money than the next service, and willing to risk 50 in the hand to make the 1 in the bush, because it is not their money, and like the government they do not care if they lose it, or invest it wisely. It is like monopoly the game, but for you it is not a game, it is your farm, your money, your risk, your stress, your life, you do not get paid by telling people prices will go higher, or not hedge and risk much more than you are willing to hedge at. Self directed is the only way to go.

Charts: SX charts 2016 high is now a bracket line, and is strong resistance coupled with the continuation chart major downtrend line that comes in near $12.10 for the July contract (I showed this chart a month ago). Any rally near there I am a willing seller. I continue to be short looking for under $10 by expiration. Support is clearly found at the uptrend line which also is near the low of a week ago Friday. Bulls will want to defend $10.70, because if that does not hold, $10.20 is the next significant support to be tested. I want to take the sell signals only today and risk $.05 using a buy stop to protect.

No place to sell corn or wheat but likely to go lower this week, hedges should remain in place unless you can reduce something cheap, or just take some short calls spreads off completely and take profits leaving only a few cents on the table. But that few cents one day might allow you the chance to sell a smaller call spread at higher strikes for triple the price you paid. Many hedged 2017 corn; here is your chance to reduce greatly or completely take off your 2017 short corn and wheat call spreads (everyone used December 2016 options for 2017) which leaves you with the put spreads for further income. If and when the market rallies, even 6 months from now, THEN you can sell another call spread but this time you will sell December 2017 options. EVERYONE must have nice profits on short call spreads, and anything over $4.50 is really cheap. I recommend taking off some 2017 calls spreads, maybe rolling down long $4.00 puts to $3.80 for more income too, and if and when we can go up $.20 from here, use that income for new 2017 hedges using 2017 options). I would get out of at least half of my corn call spreads for 2017. It did its job. People hedged and morphed so many times since 2016 hedges started over 1 year ago. Some new hedged this year, and everyone has taken advantage of the market the way each felt fit, but strikes are different, some have 2016 and 2017 combined in 2016 options, so there are many ways to reflect your current hedges going forward.

Contract lows in corn and wheat means one thing only, take off or reduce whatever call spreads are cheap. 2016 hedges could have bought cheap puts, in corn and wheat has tripled. August options that were $.02 two weeks ago, are now $.35 in the money. Take a look at the soybean puts, cheap, but instead of buying back $9.40 or lower puts, I would rather use the money to roll up the long put instead.

I am bearish soybeans this week, corn and wheat could erode lower.

Want to know what I think for tomorrow and going forward?


The markets covered daily are 2016 & 2017 Soybeans and Corn.


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Howard Tyllas
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About the author


Currently a member of The Chicago Board of Trade (CBOT) and registered with the Commodity Futures Trading Commission (CFTC) as a floor broker and a member of the National Futures Association (NFA). I started my career in 1973 on The Chicago Mercantile Exchange trading floor working for a major firm. Three years later I purchased my first membership and began what would become a thirteen-year commitment to trading soybeans for my own account on the trading floor. I began trading options on futures since their inception in Chicago about twenty years ago; doing so, I traded in various pits on the trade floor. 

One of the major lessons that I have learned from all my years of experience is that knowledge is an important condition for the possibility of successful trading. Knowledge gives you a better chance to succeed by eliminating obvious mistakes: with it, you will never find yourself shamefully uttering, “If I only took the time to learn”.  
         
I want to save you from such regrets by teaching you where the danger is, what it looks like, and how to go around it, while still keeping an eye on your destination of success. In short, I will teach you how to combat error with knowledge.
       
My mission is to educate you, giving you my 45 years experience, wisdom, and knowledge from which you will then be able to use and benefit from at will.

I know what will help you make money, and I know what will insure failure. Use my services and prevent, “If I only knew”.  
  

Howard Tyllas

Futures trading involves the substantial risk of loss and may not be suitable for all investors. Past performance does not mean future results.

If you have a question or comment, email me dailynumbers@futuresflight.com

Visit my website www.futuresflight.com

                                                 

                        

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