I have outlined selling wheat puts on two occasions ( December 2016, April 2017) and in both occasions we were able to keep 100% of the premium we collected. Folks, in bear market years there is no easier way to get your revenue above your break evens than by selling puts at intermediate cycle lows. I recommend this strategy not only for wheat, but for all your corn and soybean bushels.
To recap, selling puts is a bullish strategy. I only recommend this strategy at the beginning of intermediate cycles because short puts are marginal. I want the underlying asset to take off to the upside because paying margin calls is not the easiest thing for most people to do.
But why sell options? 80% of all options expire worthless, so it is usually the option seller, not the option buyer who consistently makes money. Selling at ICL's give the best possibility of avoiding margin calls. The largest gains in any market are made in the first few weeks after the beginning of a new intermediate cycle. This time it is even better because wheat is also at a yearly cycle low. The gain in wheat should be very good which is why this time, I am recommending selling a higher strike option.
For every 5000 bushels of corn or soybeans you wish to apply this strategy towards, sell one 4.75 December put. This put will expire in 13 weeks on November 17. You will collect .52 per bushel. As long as wheat closes at or above $4.75 by June 16, you will keep all of the premium you collect. If it falls below $4.75, then you will have to cover that amount. Say the price is $4.50 on June 16, you have to pay .25 per bushel back, but you would still keep .27. From that standpoint, you would still gain on the strategy. The only way you can lose money really is if the price falls below $4.23. Given where we are with the cycles, the oscillators, and the dollar, I feel confident losing money won't happen. Why did I choose $4.75? Because that will be close to where the 200 day moving average will be on December 17. If wheat prices break above that level, (which I expect it will), then it will probably move back to the $5.09 area which would be a 50% retracement of this waterfall decline wheat has been having.
Being conservative, wheat will probably need only one daily cycle to reach $4.75. An intermediate cycle is two or more daily cycles. The option will expire on November 17 which means we have 2 daily cycles to reach $4.75 by options expiration. That is a very mild gain for wheat.
I am officially applying this strategy to help my soybean and corn positions. I am presently 75% sold on soybeans, but I am applying this strategy to 100% of my soybean positions. I am also applying this strategy to add to the synthetic trades I have made this year. I have yet to price any corn bushels. This should net me an additional .52 per bushel on all my corn and bean sales. This strategy will also work well on wheat.