Over the past two weeks we have seen an interesting battle play out on the volatility front instead of the flat price forum. The government of Mexico bought corn straddles and strangles in July-Dec while buying a 7X1 put ratio in wheat in May-Dec. They have inflated volatility in corn by 3-4% while in wheat volatility is up 3-5%. This is an inequity that was reversed today, in a big way. As talked about this morning during the broadcast, wheat volatility between May-July has widened to 5%. (July @ 39%, May at 34%) This was simply too juicy an apple to ignore. Paper sold both July and Dec vol with the latter getting hit hardest. Paper sold 1,000+ WZ 600 straddles starting at 160 with a standing offer at 155 going home. The pit was only bid 151 on the close. This illustrates the opportunity available if you look at markets from outside the box paying attention to abnormal skews in the optioons market.

MPI

This entry was posted on Tuesday, January 26th, 2010 at 5:06 pm and is filed under Grains. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.