Getting Long on Short-Dated Grain Options

Trading Spikes on New Contracts amid Commercial Interest

Futures and options contracts offer a straightforward proposition for commercial grain traders: If they allow you to do what you already do faster, cheaper and better, then use them.

So it is with CME Group's recently-launched suite of Short-Dated New Crop corn, soybean and wheat options, according to Howard Simons, a CME Group contributor and a former trader. If early trading in 2013 is any indication, these contracts will take their place alongside long-standing conventional grain options eventually.

According to CME Group data, 6,505 Short-Dated New Crop corn options traded on January 4, the highest for a single day since the contracts were launched in June 2012. Open interest as of January 8 totaled 10,576 contracts. Traders say the contracts are especially useful for tailoring strategies around specific short- and longer-term events, such as Agriculture Department crop reports.

"The greater the price volatility and/or the longer the time to a contract's expiration, the greater the cost of using options," a commercial hedger told Simons. "Thus CME Group's Short-Dated New Crop options allow us to manage new-crop risk at a reduced cost during targeted timeframes in the growing season."

Read Full Report