Selling Options Successfully Using Seasonal Patterns of Prices
Seasonal patterns can produce high probability trades. This is what an options distribution probability looks like when there is an equal chance for the underlying’s price to go UP or DOWN:
Prices are just as likely to go to area A as area C
If you SELL a CALL option at a time when there is a strong seasonal tendency for the underlying commodity contract’s price to go DOWN, the normal distribution of probability becomes SKEWED (biased):
The option’s TAIL (on the left/lower side) becomes FATTER. And the SKIRT (on the right/higher side) becomes STEEPER.
This means when a trader is SELLING CALLs during seasonal price decreases, the ODDS favor the trade MORE than a non-seasonal trade (as in stock options.)
Though I am taking a little creative license to say it this way: This becomes a “SEASONAL OPTION”, or at least a short CALL option that certainly has a distinct seasonal advantage for the option’s seller.
The successful method for selling commodity options not only includes such a seasonal price skew, but also selling ONLY far out-of-the-money strikes that have a very high probability of expiring worthless (Prob OTM percentage.)
The commodities that have the very STRONGEST SEASONAL PRICE PATTERNS are crops planted annually with seasons defined by Mother Nature. A trader of commodities and options on commodities MUST be acutely aware of a market’s seasonal price patterns. This includes seasonal spreads, contracts, and options.
You don’t have to be an options expert to trade options – any more than you have to be an expert mechanic to drive an automobile. You only have to make informed decisions.
Learn Selling Options and this Trading Method FREE
In my newsletter – the TIME FARMING TRAINING BULLETIN – I not only include price charts, I include historical price charts that indicate the seasonal price patterns of the underlying’s price behavior over a multi-year time period. I choose and illustrate which STRIKE prices I use, plus a review of the ag market’s FUNDAMENTALS (supply-demand, weather, planting acres, yield, and more.)
Not one in a thousand option traders are exclusively SELLING COMMODITY OPTIONS, yet this strategy is used daily by professional traders and money managers. Learning a very specific strategy that you can use over and over again for years to generate income – is more than worth the effort required to learn it. The TIME FARMING TRAINING BULLETIN takes that which people tell you is complicated – and makes it simple to understand and use.
“There seems to be some perverse human characteristic that likes to make easy things difficult.” –Warren Buffett
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