CU/CZ Spread is not for the faint hearted. We have Sep options expiring tomorrow. Sep Corn has rallied 46 cents in the last 9 days. We had been down below 4.55. There were a ton of Sep outright 5.00 puts that have been run out of contention. There were 5,000 more puts than calls in Sep. In my opinion, Come Monday, we’ll re-establish the down trend we have been slugging through since September of 2012. Since the June spike up to 6.10 we dropped 1.55 or 25% in value.
One caveat; Trading Delivery spreads from the short side can be lethal. Just ask the guys in the Wheat pit back in 2009. It can be financially fatal if you get stuck on a squeeze with both legs of a spread pounding you.
I know some guys looking at SEP Dec this morning looking to sell this spread at 28 if we get there. Its a great idea if we puke next week and head back down to 6 where we were yesterday. However, you have to look at the what if. What if it goes back out to 44.
I wouldn’t go crazy but I’d put a couple on between 28 and 30. Barring doing the spread, sell the Sep corn at 5.00 when they get that print. And they will no doubt try to get CU to settle right at $5.00 tomorrow. That makes all those calls and the twice as many puts expire worthless. That’s the pro’s game and that’s why you have to respect the money flow.
CER