November was a choppy month, with potential upside and downside breakouts, but ultimately remaining range bound and finishing the month with little fanfare.
We started the month on a failure after a strong finish to October. Wheat made new highs, corn looked to be breaking out of a month’s long down trend. That pullback lasted until the USDA report which was bullish for Soybeans on a yield cut, but neutral to the other grains. That was the beginning of the bounce that lasted up to Thanksgiving. We saw pullbacks into the end of the month on what could have simply been profit taking.
Interestingly volatility was little changed over the month. While net price change for the month wasn’t large, the monthly range for each product was large enough to comfortably and profitably scalp gamma. Soybeans had over a $1 range, Wheat almost $1 range, and Corn had a 40ยข range. Relative to the price moves, Soybeans look to be the best gamma value, they also have the lowest overall volatility.
The volatility of the past month doesn’t guarantee that scalping opportunities will continue to exist. And it is probable that the Corn and Wheat volatility are higher than soybeans because they have better fundamental and technical justification for a breakout move.
As we look to finish off this year, we know that many of the funds that caught the rally in the beginning of the year, or correctly called the midyear break, are just looking to sit tight and not rock the boat and risk their returns for the year. However, we do have a highly anticipated report on January 12 that could cause some position adjusting. Fund currently sit long Corn and relatively flat Soybeans and Wheat. We would expect these positions to hold into the report. We could see some put buying in Corn to protect the longs, and we wouldn’t be surprised to see an uptick in soybean volatility given how low it is coming from and the potential market moving event that we are approaching. Theta decay from options should be offset by volatility creeping higher over the next 3 weeks. Now is a good time to buy and scalp gamma as we don’t anticipate the option premium to lose much value ahead of the Crop Production and Grain Stocks Report.
