FAOAS has been quite for the past three months with vacations and light trading. Here we start off September with the USD reaching the lows off the year. “Commodity Boom of 2009″ that every analyst predicted sure hasn’t followed suit. Wait a minute! Is this the start of the rally? With continued spending by the US government and foreign countries unloading US currencies and investing in emerging markets. These investors are looking for better earnings. Or should the be looking toward commodities?

Here are some that might have been invested by some of the larger funds. Sugar, nice rally to 2485 and then a selling of 5,000 contracts to drive the market to a low of 2050. With sugar in a deficit for the year, this rally may be at a stand still for a while. India has been receiving some late moisture, Brazil has still had a decent crop size, and US sugar beets may produce a the best production levels in years. FAOAS is keeping a close watch. The 1974 and 1981 rally in sugar topped out in late October and early November.

Right along with sugar goes cocoa. The bulls have near term control of this market. I am looking for a test of 2008 highs. The weak longs were taken out last week. FAOAS is watching to see if there will be a follow through in the next couple of days. This market is always hard to predict with very little fundamental news on regular basis. Also, the political extremes in the Ivory coast.

Grains,Grains, Grains. What can we say, no summertime rally in wheat. Corn and Beans pushing newer lows. These markets should see a bottoming pattern. Hopefully soon. The fall low in beans should be coming if we had not hit it yet. Looking for some confirmation after a 50 cent rally last week. This is all going to be weather related for the next couple of weeks in the outlook of a major frost. Great growing conditions for grains all year except for some late spring planting. Which in turn deserves the risk of an early frost.

Equities and currencies  are in the sites of the Federal Reserve Meeting on Tuesday. Expect some readjustments by funds on the recession outlook. Bernanke states reccession is over, the media states all doom and gloom with unemployment. The equities need some sort of correction in order to proceed with the gains. If you were a client, you were told of  the gap in the S&P 500 weekly chart at 1109.00. FAOAS has been bullish for a while. 1067.00 was the key number for a nice correction. S&P hit a high of 1071.50 on Thursday and then couldn’t break the high on Friday. FAOAS is short-term short for this market with a close stop at 1075.50.

Be on the look out for future reports and chart patterns in the coming days. Sign up for our Weekly Newsletter to take advantage of our Commodity Outlook. If you are looking for up to the minute trades contact me to become a client.

Economic activity in the manufacturing sector failed to grow in June for the 17th consecutive month, while the overall economy grew for the second consecutive month following seven months of decline.

Personal income increased 1.4% and Disposable Personal Income increased 1.6%. Real PCE increased 0.2% inthe month of May. Read full report here.

The Sell/Write/Short an Option. This strategy has unlimited risk and carries margin requirements just like a futures contract. Margin requirements are calculated differently at different brokerage houses. Make sure before entering in this position you contact your broker to find out out margin requirements. As for unlimited risk, if the underlying futures contract goes beyond your strike price you are now accountable for a possible exercise of the option. The use of stops are necessary for this option strategy.

There are a couple of advantages to this strategy. First of all, you do not have to predict which way the market is going but choose where it is not. Options are wasting assets, meaning that options  are comprised of time premium which disintegrates with each day. The longer the amount of time until expiration, the more value it should have.

Second, 90% of all options expire worthless. This means that only 10% of option buyers actually make money. The odds for option sellers or writers are in their favor. The key to selling options is to use market volatility to your advantage. The higher the volatility the higher the option premium. The best strike prices are usually 2-4 futures moves out of the money. the amount of time left until expiration should be somewhere in between 21 and 60 days. Anything longer, it takes larger underlying futures moves and less time premium wasting per day. Again as with other option strategies you need to use a very liquid market.

There are a couple of exit strategies, the best would be to collect between 50% and 70% of the option value and exit position.

In the week ending June 20, the advance figure for seasonally adjusted initial claims was 627,000, an increase of 15,000 from the previous week’s revised figure of 612,000. The 4-week moving average was 617,250, an increase of 500 from the previous week’s revised average of 616,750

The first quarter GDP decreased by 5.5%. Fourth quarter real GDP decreased by6.3%. Read Full report here.

Purchase of a call/put option.Purchasing an option gives you limited risk. (The limited risk is the premium paid for the option plus any commissions or fees associated with placing a trade.) This strategy also gives us unlimited profit potential.

 FAOAS uses this strategy for two main reasons.  One the market has been trading in a range for a while, it is starting show signs of a breakout. The volatility has been low, so the option price does not have excess price value. Since no volatility price excess we can purchase an option close to or even at the money.  Option is usually holding just time value. Use this in liquid markets only, especially if we purchased an out of the money option. You want to make sure you can exit trade if underlying futures contract does not make it to your strike price.

Second, if markets have high volatility swings. The main reason for this is if the market is in a strong trend, this gives us staying power against any wrong direction movement in the market. 

This is also the first leg of the “Free Trade” strategy.

Interest rates st at 0-1/4%. Read Full Report here.

Soybean meal chart

Trade- Buy the December Soybean Meal 250 put for 7.00 or $700.00

Soybean meal made a nice head and shoulders pattern the last couple of weeks. Meal broke through on Monday. Meal is on its way to test the break out at roughly 320.0. With Informa’s acreage report showing an increase of about 2 million acres more than previous USDA estimates. The soybean complex should pull back at least to first support at 300.0 and then 280.0.

If you would like more information on trading futures and options or to open a futures and options trading account please use the contact form below.