Soybeans – Profiting from a Rally in Soybeans

March 30, 2010

Soybeans are positioned such that a standard trade, using futures, call options and put options, speculates on a rise in price ahead of the USDA Crop Report.

The image depicts more information than is posted. The key points to note are that a) the loss is limited by the possession of the put option, the profit is limited by the sale of the call option; and b) the position has limited risk and limited reward.

This condition is ideal when the reward potential far outweighs the risk potential. In the graphic displayed, a theoretical worst-case scenario of risk reward is very acceptable.

This is not a trade recommendation. This is a depiction of how to exploit a bias (in this case, upwards) in a market that has solid risk/reward potential.

May Soybean Futures

May Soybean futures

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