Volatile markets create opportunities. And when those opportunities present themselves, you can use those favorable price swings to do good things that seemed out of your reach, or you can choose to sit back and wait for just the right price. 

The problem with this neat plan is that the same volatile underlying conditions that provided unexpected gifts can swiftly take them away before you’ve capitalized and/or captured revenue, either with sales or at least some sort of hedging action.

In the past seven days we saw a monumental amount of news! A presidential election, a USDA report and a Fed meeting all bunched together, creating a perfect storm for market volatility. And markets did not disappoint.

Volatility giveth and then taketh away

The swings in price can be the hardest part to manage. Trading off bullish readings from the USDA and expecting the market to simply keep going doesn’t always work out the way you want.

We saw production and yield reductions in both corn and soybeans but no increases in demand or demand outlook after three weeks of consistent flash sales and big corn buys from Mexico. These mixed signals require you to remain guarded in your price sentiment. This makes one consider the nature of volatility and the unpredictability of markets that react to information that is always evolving.

Before the election, I suggested long options straddles, where you buy the call and the put on the same strike. Getting a long options straddle in the front month Dec corn could provide effective coverage no matter which direction we might move following the election decision. December options premiums don’t have much time left and are relatively cheap.

The idea is to use options and their leverage potential to remain in position to benefit no matter which way the market moves in the next few weeks. And it is an example of the limited risk benefits of options versus not doing anything or stepping out with a riskier binary decision using futures to be long or short.

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