As the calendar moved into February, tariffs became the focus of the markets. The biggest concern were the tariffs announced on primary trading partners Canada and Mexico. These two countries are large importers of both corn and soybeans. These concerns came out as both corn and soybeans had started the year with strong performance. Corn had moved up close to $5 and the trend higher looked to be developing. While Soybeans also had a nice move higher, the 1-year moving average came in around 1085 and this looked to be resistance. While traders were now long in both markets according to the Commitment of Traders, the long in Soybeans was new, having flipped from short to long in the last month. Corn longs potentially had stronger hands. Turning to the volatility markets, neither product had particularly high implied volatility relative to their own time series. That said, Soybean implied volatility was not only lower than Corn volatility, but Soybean implied volatility was also lower than its realized volatility. This suggested an opportunity to be long gamma in Soybeans for the February WASDE.

The idea was to buy a ZS4G5 1070-1080 strangle which would cover the WASDE number of February 11 but also have a couple more weeks to cover any headlines regarding trade and tariffs. With uncertainty rising, being long gamma would allow traders to buy low and sell high in the futures market, as they scalped their deltas, and the hope of covering theta was high since implied was less than realized, which itself could be expected to rise. Another way to use this idea was to play for a move outside the breakevens of the strangle at 1028 and 1112. The idea here is that if there was a move in a direction, it would be larger than what the options market was pricing in, either lower after a failure at the 1-year moving average with more negative headlines, or a breakout above the moving average on the all-clear from trade.

Over the course of the month, Soybean prices did fall. Having hit a high of 1075 early in the month, they ground lower to close the month at 1011, below the breakeven on the straddle. Realized volatility, which was at 25 at the start of the month, ground lower over the course of the month to end near 15. Implied volatility fell from the 18 level that I bought in the strangle to also close the month at 15. The success of this idea all came down to the trader’s view going into it. If the trader wanted to delta hedge it, trading futures intraday in an attempt to cover the time decay or theta, it was probably difficult. While there was a big move lower there were few opportunities to trade in and out of the market intraday. However, I also suggested that the trader could consider this as a breakeven trade. If that was the case, futures did close at expiration (February 28) below the lower breakeven, meaning the trade could be profitable. It all came down to the view going in, whether this was a small losing trade or a winning trade.

The report for March came out as a regular Excell with Options report and not the Ag Options Special. This month I looked at both Corn and Soybeans. Trade frictions were the catalyst as ag markets suffered with the U.S. and China continuing to spat. That said, implied volatility had moved higher with the rising uncertainty in markets, so simply buying options to express a view brought in the risk of a collapse in volatility if there was any resolution. This suggests a spread of some sort as the optimal trade expression.

I chose to buy put-butterflies on both Corn and Soybeans, using the ZC4H5 465-450-440 put butterfly in Corn and ZS4H5 1030-1000-980 put butterfly in Soybeans. As is usual, I prefer split strike butterflies in case I am “too right” on the direction.

By March 30, Corn closed at 4.50, which was my maximum gain and Soybeans closed at 1020, not my maximum gain but still a profitable trade. While these were relatively simple and straight-forward ideas, they show the power of using options to take contrarian views. The market was worried about large moves in the futures, in either direction, because of trade concerns. Volatility was high. It can be daunting to either buy or sell options in that type of market. By using a spread like a butterfly, in this case with puts, traders are able to express a view that futures will drift in a certain direction but be less volatile than the market expects. The risk of loss is defined and limited. The gains are also well-defined.I was glad to be successful on both trades but it is because of the asymmetric reward to risk set-up that I feel comfortable making these types of trades.

Looking into April and all the buzz in markets is Liberation Day. Risky assets are tanking and uncertainty about future direction of markets and the economy has not been higher. Of course, when there are global trade concerns, the agricultural markets are front and center because of the positive terms of trade the U.S. enjoys in both corn and soybeans. Both are used as pawns in the game of trade, and this is particularly true when it comes to China. The April 10 WASDE report is the catalyst, and early in the report I showed how the WASDE data does in fact have a big impact on the movement in futures.

Despite this, I did not see much impact in the implied volatility market in either Corn or Soybeans. In fact, there aren’t even views being expressed in one direction or another (Skew) or in low premium out-of-the-money options relative to at-the-money (Convexity). Using the Event Volatility Calculator, there is even little extra volatility priced in for this event. Therefore, one can see where I am going – I decided to express another long gamma idea for the WASDE catalyst.

In both products, I chose long gamma breakeven trades that expired the day of (Corn) or the day after (Soybeans) the WASDE report. This is the equivalent of a 0 DTE option. In corn, given there was no premium for low delta options, I chose to buy 15 delta strangles, the 430-480 strikes, that had a breakeven of 427 and 483. For Soybeans, I looked closer to the at-the-money, the 1020-1030 strangle, with breakevens of 998 and 1052.

One can see from the chart, on the day WASDE came out, Corn opened at 473 and closed at 484. The closing price was above the breakeven of the strangle. In fact, if traders exercised and held onto their 480 calls, the next day Corn closed at 490.75 so gains were potentially even higher. Soybeans opened on April 11 at 1026 and had a high of 1044 before closing at 1042. This trade never got to the upside breakeven, so I lost the premium invested. Same catalyst, two underlying markets, both long gamma but expressed differently. I make money in one trade and lose in the other. A 50% hit rate is not bad in this business.

For the May WASDE report, I got ambitious. I decided to put out ideas in Corn, Soybeans and Wheat. Trade tensions and tariffs are still a major concern. The headlines are all about the concern farmers have about where the demand for their crops will come from this year. The Wheat chart has already broken technically while Corn and Soybeans are starting to look shaky. All of that said, there still appears to be little concern among traders with implied volatility still near the lows of the last year and the Commitment of Traders report showing leveraged money is long in Corn and Soybeans but short in Wheat.

While it is the same catalyst, there were three very different ideas across the three underlying markets. All of the trades expired the Friday after the WASDE report came out, showing the power of daily expirations around a catalyst. In Corn, the idea is to sell a 455 put and use the proceeds to buy 2 of the 440 puts, taking in a small amount of premium. The bet is futures either move a little higher or a lot lower. The biggest risk is a drift to the long 440 strike as that is the maximum loss. In Soybeans, futures look like they want to break out, but there is risk. The idea is to be long futures but hedge this risk with a 1000 put, effectively creating a synthetic call for the event. Finally, in Wheat, the idea is to lean into the weakness in the market, thinking traders will look to get even shorter. I suggest selling a 535 call and use the proceeds to buy two of the 515 puts.

The outcomes were mixed. In Corn, futures traded weakly ahead of the report, trading to a low of 436 before recovering to close at expiration of 448. The outcome for a trader all depends on how they risk-managed the trade. There was the opportunity to trade out of this position for a good gain, when futures traded below the 440 level. If the view was to hold until expiration, though, the position would have closed near its maximum loss. Winner or loser, it all came down to how the position was managed. In Soybeans, futures did indeed break out, trading to a high of 1067 the day before expiration before closing at 1052. Having the put hedge was beneficial to traders staying long futures. The synthetic call trade was a winning idea. Finally, Wheat had a similar outcome to Corn. Futures traded below 500 before expiration but rallied sharply in the last couple of days to close at 534. If traders decided to trade out of the position in the day or two before expiration, there was the possibility of strong profits. If they did nothing, the gains were gone but at least futures closed below the strike so there were no losses even in the worst-case scenario.

Three ideas, three reactions, but three possibilities to make money for the nimble trader. This shows the possibility of option ideas.

Drought-like conditions during the Spring planting season are now market discussion as I head into June. In mid May, Chicago is hit with its first dust storm in 100 years, speaking to the dryness in the corn belt in the U.S. The initial corn conditions reports are some of the worst in many years as a result. Export sales are looking somewhat poor for corn and soybeans on the back of trade tensions but are looking quite good in wheat. It isn’t a clear bullish bet for wheat, though, as Argentina is expecting a bumper crop in wheat. WASDE looks to be a catalyst in corn and wheat, as the Event Volatility Calculator shows high volatility priced for the June report while there is little expected in terms of volatility in soybeans, which is interesting.

Taking this into account, I recommend a mid-June expiration 440-430-425 put butterfly in Corn, leaning into a bearish outlook but being careful not to be too long since volatility is priced so high. Futures are 447 and the breakeven is 438, with limited risk to loss of premium only, and the possibility of gain even if the move to the downside is large. In Soybeans, with no volatility priced in, I opt for a straddle, but set the strike a bit to the downside for lower volatility. I buy a 1040 straddle with futures at 1051.50, giving us breakevens on the trade of 1015 and 1065. Finally in Wheat, with high implied volatility but a bearish directional view, I opt for a similar idea to what I have used before selling a 545 call and using the proceeds to buy two of the 515 puts. All options expire June 13, the day after the WASDE report, using the Friday options that are available.

In Corn, futures stay in the 435-445 range throughout and including the day of the WASDE report, so out put butterfly expires worthless, costing us the premium spent. This is unfortunate as Corn prices begin a sharp sell-off the following week but I was not there to participate. In Soybeans, futures jump from 1042 to 1069.75 after the WASDE report, moving above my upside breakeven. This gives me a small victory on my straddle trade. I am happy I chose a strike that was below current futures so I benefit from a lower breakeven. Wheat breaks my heart once again, trading to a low of 526 before the WASDE report, looking like my puts are going to make me some money. However, on the day of, futures trade back higher and close at 543.5 which is at least below my call strike so I don’t lose any money, but I don’t make any either. Small gain in Soybeans, small loss in Corn and a breakeven in Wheat. Not much to celebrate nor be too upset about this month.

As I turn to June, the focus is starting to shift in the market. Now the focus is on the recently completed planting season in the U.S., where drought conditions have given rise to rainy and hot weather in many parts of the country. In addition, there were reports of a record corn crop coming out of Brazil. The bearish price action that started the week after the June WASDE has continued into early July. Traders are getting short futures but the Skew Ratio has spiked ahead of the July report suggesting hedges are being put on. The overall level of implied volatility is not onerous and the Event Volatility Calculator shows no event volatility is priced in.

The trade idea is for Christmas in July: a CN2N5 Christmas Tree. This is long one unit of 430 call, short 3 units of 450 call and long 2 units of 470 call. It is a bullish idea but similar to a symmetric butterfly, if futures move too much, I give those gains back. Futures are 429 and the trade makes money from 430 up to 459.50, then generating losses that are capped by the 470 strike to the upside. The hope is for a contrarian bounce in the corn market after the WASDE report given how bearish traders have become. I don’t simply buy calls because skew is too high so I find a call-like structure that actually sells the elevated upside volatility.

Futures trade lower into the WASDE report on July 11, and while they jump on the Monday expiration, they stay below my lowest strike. All in all, I lost the very small (1 tick) premium I invested. It is essentially a breakeven for me because I took advantage of selling the high volatility and buying the low volatility. Even though it did not work out as planned, I am able to limit my risk. Christmas didn’t come early though!

Moving into August, often called the dog days of summer, the weather is definitely the topic of conversation. It isn’t just the high day time temperatures. In fact, a bigger discussion is that the low overnight temperatures are in the 100th percentile of the last 30 years. Said another way, it is really hot at night. This matters, because corn and soybeans need cooler temperatures overnight to grow and increase yield. For traders, now, the conversation is not as much about acres planted, as they already know that. It is about the yield per acre. Traders are short and the technical charts are weak. However, since prices are trending lower, implied volatility is on the low end of history. Despite low volatility, Skew Ratio is high suggesting the leveraged money short is looking to hedge around catalysts like WASDE.

The set-up in Corn is more bearish, so I look at New Crop Weekly options expiring in mid August (3 weeks). I use a jade lizard which is short an upside (425-430) call spread and short a 405 put. If futures rip higher on the news and given the short positioning, I will still make money as I took in 5.58 and the max loss higher is 5. The risk is on a move below 405, but with large short positions, the hope is short covering on a move lower slows the speed on the downside. I lose below 399.40. In Soybeans, I literally took a different direction. I used the same 3-week expiration but bought a 1030-1060-1080 call butterfly looking for a bounce higher, but enabling profits even if the move continues above 1080. The breakeven is 1035.70.

Corn surprises us to the downside ahead of the report. It trades to a low of 372 and even though it does bounce on the report, it closes at 383 at expiration, below the breakeven on the downside. Even with the market being so short, I was not as protected to the downside as I thought. Soybean prices do rise but only get to 1022 by expiration, not getting to our lowest strike. So I lose again, this time limited to the premium I spent. Frustratingly, futures continue to rise after expiration, which would have reduced my losses in Corn and given me a gain in Soybeans, but I was not there to participate. Options involve time as well as direction, and I got the time factor wrong this time.

It’s now September. Traders are coming back from summer vacations. Ag traders have in their memory the sharp bounce in both corn and soybeans post the August report. The trend has still been weak all year, but that move likely caught people off guard. Since it is September, it is time for the Pro Trader Crop Tour, where a private company will tour farms throughout the country to get a look that may or may not agree with the data the USDA gives us. Social media is ablaze because the tour gives estimates for corn and soybeans that are below what the USDA is forecasting. This is especially the case for corn. While China has not shown up on the demand side of the equation, biofuels have been big buyers of products this year. Is it time for the supply/demand picture to be tilting in favor of higher prices?

As has been the case for most of the year, implied volatility is not high but the demand for upside options as seen in the Skew Ratio is elevated. Leveraged money that is short may be using upside options to protect their positions, perhaps more so after the move in August. Given the setup, I recommend bullish trades in both Corn and Soybeans. In Corn, I look to sell 395 puts to buy 430 calls for zero cost. The 395 level has held before and since there is no premium outlay, I can look to risk manage on a break below the previous support. I have unlimited upside above 430. For Soybeans, I use a different idea. I buy a 1070-1100 1 by 2 call spread. I tend to not like 1 by 2 trades for directional ideas because they do not mark to market well. However, this is for expiration since I choose the expiration right after the WASDE report comes out. Given the elevated upside volatilities I needed to be careful to be a net seller of options, but this means on a move above 1127 I would start to lose money. I make above 1073 with a maximum at 1100 before I have risk above 1127.

In both cases, prices do jump higher after the report. In Soybeans, prices get to our lower strike, but don’t keep going and so I end up with a small loss of premium on the trader. However, I do much better in Corn, as futures get to a high of 445 after the report, and I made money on any move above our 430 strike. Nice gains in Corn and only a small loss in Soybeans is not a bad result.

Moving into the fall harvest season, markets are starting to get bearish again. Traders are getting short in Corn, Soybeans and Wheat. In addition, the technical charts are all looking negative. The options markets show the same pattern I have seen, low implied volatility but elevated Skew Ratio. The government shutdown delays the WASDE report, but this happened after I put out the trade ideas.

In Corn, I look at the possibility of a countertrend move. Traders and charts are getting too bullish. So, I decided to sell a 420-410 put spread and use the premium to buy a 430 call for zero cost. Futures are at 422 at the time of trade and I make money above 430 if futures are above by the mid-month expiration. In Soybeans, the direction is not as clear, but the volatility is so low, I decide to buy a 1010 straddle, with breakevens of 984 and 1035, hoping for a large move in either direction. Finally in Wheat, I lean into bearishness with a 510-535 risk reversal, selling the calls and buying puts for zero cost. I make money below 510 but lose above 535. Futures are 521 at the time of trade so I like the odds.

Corn futures fell from 422 to 410 before recovering to 420 by expiration. I never saw prices move higher but because I had a defined risk set up in the trade, I didn’t have to take any action at the lows. The move back to my short strike at expiration meant the losses were tiny. Soybean prices traded to a high of 1029 and a low of 1006 while I owned the straddle. Perhaps I could have limited some losses with delta hedging, but as it was set up as a breakeven trade, I ended up losing the premium spent. Finally, in Wheat, I make some money. Futures trade from 521 down to a low of 496 before expiration, settling around 498. I made money anywhere below 510 so this trade is a big winner for me. All in all, while only going 1 for 3, I have limited losses in Corn and Soybeans and better gains in Wheat, so even without the WASDE report, I am able to make some money.

With the government shutdown continuing, there was still no WASDE report. As a result, I decided to turn my attention to the live cattle market. Anyone who has not watched it closely might be surprised at the strong uptrend in live cattle for the last several years. However, any consumer that has been shopping for beef in any form might be less surprised. Moving into November, the affordability issue looks set to get worse as the U.S. Department of Agriculture closes the border with Mexico because of a virus that is impacting the feeder cattle herd south of the border. Feeder cattle prices drive live cattle prices, which look like this could be another catalyst for a move higher. The president is concerned with affordability and given the U.S. has just provided a relief to Argentina to stem its currency crisis, he decides that the U.S. should relax its import ban on Argentinian beef to bring down prices. What are ranchers and traders to do with this uncertainty?

Live Cattle prices are starting to roll over and the MACD is turning lower. Leveraged money is still positioned long, however. Implied volatility is moving higher, to the highs of the year, and this is driven by demand for downside options as I see the Skew Ratio drop sharply below 1.0. I have decided to sell a call spread to fund buying a put spread for December expiration. I sell a 239-244 call spread and buy a 230-220 put spread for zero cost. With futures at 234, I risk 5 points if futures move back to the upside but are able to pick up a potential 10 points on a higher move.

While I have not gotten to expiration yet, futures fell throughout the month of November hitting a low of 205, before recovering sharply into the December expiration. Currently futures sit at 227, which means that as of today, the trade is neither making nor losing money. However, at 205, traders would have had the opportunity to trade out of the spread for a profit. While they couldn’t sell the put spread at 10, there was a chance to sell the put spread for considerably more than it would cost to cover the call spread, so even on the bounce back, traders could have locked in a gain and even considered putting the trade back on at this point. I would call this a success for my first foray into the cattle markets in 2025. 

With the government shutdown concluded, it was time to go back to the agricultural markets to find a trade idea. The next WASDE report is set to come out on December 9, a few days away still at the time of this writing. The buzz is now about the U.S. trade deal with China, which requires China to buy soybeans. As this news came out at the end of October, futures rallied sharply in November, hitting a high of 1170 before settling in between 1120-1140 by the end of the month.

Soybean implied volatilities have gone much higher on the breakout, but the Skew Ratio has fallen so it is no longer favoring the calls as much and is more neutral. The idea to take advantage of this is to put on a bullish trade since the market is fading the news that China will buy as many Soybeans as is indicated. Using the market pricing, I choose to sell an 1120-1080 put spread and buy an 1160 call for December 11 expiration, after the WASDE report on December 9. The risk for traders is the 40 ticks between strikes on the put spread, and gains are unlimited above 1160. Futures were 1129 when I recommended the idea and are 1105 at the time of this writing, testing a trader’s mettle to the downside. Since I have defined risk of only 40 ticks, I am happy to sit and wait for the report that will come out on December 9, looking for a return to the highs of the year above 1160.

Good luck trading!

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