Selling Commodity Options is a great way to trade for income. Back on November 15, 2017, I shorted (sold) the 540 MAR18 Wheat CALL for 1.5 cents ($75 each). You can read the Wheat Fundamentals by looking at my post on November 15, 2017. Here’s the MARCH18 Wheat chart as of today: December 10, 2017:
When sold on NOV 15th, this options had a “Prob OTM” (probability of expiring Out-of-the-Money) of 94.56%. As you can see, the price of the underlying contract has continued to decline, following the normal seasonal pattern averages of the last 15-year price trend. Back in NOV, when I sold the option the underlying MAR18 CBOT Wheat was at 444.50 and now it is down to 418 cents/bushel.
Here is the smoothed-line 15 year seasonal price history of the MAR18 Wheat:
The Initial Margin requirement to place the trade was $220. If the option expires worthless, I will keep the $75 per option premium I collected when I sold that 540 MAR18 call, which will expire on about 20th of FEB, 2018.
This option was never close to being In-the-Money, and as of today 10th DEC 2017 with 75 days until expiration, the option has a “Prob OTM” of 98.55%.
My ROI (Return on Investment) at expiration will be: $75/$220 = 34% with an annual ROI of 125% = (365/99 days) * (34%)
This is how what I call TIME FARMING works:
1) study market fundamentals
2) research seasonal price pattern
3) locate and sell an option FAR OTM with near a 95% chance of expiring worthless
4) Wait for it to expire worthless, or to lose value enough to take a profit when closing the trade.
Basically, sell a far OTM option with around a 95% chance of expiring worthless.
Money management: If the price of the sold option doubles, buy the option back and exit the trade. Take a manageable loss.
There will be occasional losses but this rule helps keep them manageable.
UPDATE: (10FEB2018): This trade was placed in NOV of 2017. Outcome: The 540-strike CALL will expire worthless in only 13 days on Friday, 16th FEB 2018. Yield: 34% gain in only 99 days.
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This type of trading is risky and not for everyone. This a technique that many professional traders have used for many years. Now, with extremely discounted commissions and free trading software from an on-line broker, individual small and medium investors can learn how to use this valuable strategy. I place an average of about five trades a month, and I publish them in my subscription-based newsletter, the Time Farming Training Bulletin. I do not run a trade advisory, my newsletter is for educational purposed only. I am not a broker or trade advisor. I am a writer and educator and as far as I know, I am the only person who publishes a book and newsletter that attempts to teach medium and small investors how to use this amazing strategy.
This is not a complicated strategy. There is nothing secret or proprietary about it. Some of the best money managers in the world use it in managed accounts for their wealthy clients. It isn’t very often, but once in a while, a great new idea comes along for small and medium investors – that delivers exactly what it promises. This truly is a “smoother, better, smarter way to make money.”
Make 2018 a great trading year. Thank you – Don