Paul Cretien describes opportunities in the grain complex through pairs trades.
The individual markets within the grain futures complex at the Chicago Board of Trade are often correlated, which creates opportunities for pairs trades. There are several grain complex pairs that could lead to profitable trades. These are shown on “Calls on July 2019 Grain Futures March 5, 2019 (below).”
Oats and wheat have the highest price curves, indicating that the options market considers them the most volatile and likely to produce larger profits from options trades. Wheat and corn are traditionally traded as a pair with wheat the more variable member, moving away from corn and then returning to reduce the price spread. The vertical distance between wheat and corn on this chart shows the volatility difference between the two grains.
There are very few large differences in price from the predicted price curves on the chart. The only one that stands out is Soybean strike prices 940 and 930. There is a relatively large negative variance from the predicted price paired with a large positive variation. Sell the 930 call and buy the 940 call. An alternative is to simply buy the underpriced 940 call.
Because the chart shows soybeans with a very low volatility, it would be interesting to pair soybean with either corn or wheat, although wheat would be the more productive volatile member of the pair with soybean futures. Exchange trade funds (ETFs) are also available for corn, wheat, and soybeans. The ETFs would reflect near-term futures price changes.
