Option Selling TIP: Use Seasonal Tendencies to Your Advantage in Commodities

Option Selling TIP: Use Seasonal Tendencies to Your Advantage in Commodities
Nov

5

2015

Option Selling TIP: Use Seasonal Tendencies to Your Advantage in Commodities

Unlike stocks, where prices tend to be less and less about the fundamentals of the stock and more and more about guessing how other investors feel, commodities prices tend to respond more to their core supply/demand fundamentals.

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Seasonal Price tendencies often develop as a result of certain commodity “events” that happen at the same time each year.

Seasonal Price tendencies often develop as a result of certain commodity "events" that happen at the same time each year. Seasonal Price tendencies are a reflection of certain fundamentals that tend to take place at specific times of year. For instance, in the US, soybeans and corn are harvested in the fall. As supplies tend to be highest immediately after harvest, prices of these commodities tend to be lower during this time period. Seasonal supply/demand cycles are also present in the energy markets, softs markets (like coffee and sugar), meat markets and even in some of the metals.

15 years seasonal Soybeans

A 15 year seasonal chart of March Soybeans shows on average, soybean prices have tended to make a low at the end of harvest and then begin to rise as the new crop begins to fill demand . You must consider, however, that this chart represents a mere average and that individual years can vary depending on overall fundamentals.


Seasonal tendencies are not perfect. As we all know, past performance is not indicative of future results. There are other forces at work that can affect price discover. However, in the right hands, seasonal tendencies can be a powerful tool to commodities option sellers.

This week’s tip is to know the seasonal tendencies of any commodity before selling options on it. Knowing the seasonal can not only help keep you out of losing trades, it can be an excellent way to scout potentially high percentage option writes.

Seasonal tendencies are so important in commodities that we devoted two full chapters to them in The Complete Guide to Option Selling. For self directed traders, a good source of seasonal charts are our friends at Moore Research Center (MRCI.com).

How to use Seasonals

is a core topic discussed by James Cordier in this recorded Webinar in conjunction with TraderPlanet.com – Option Selling on Steroids. The Event, held on November 17th was recorded and we have it on our website. Watch/Listen to this rare and candid transfer of knowledge, visit www.OptionSellers.com/Webinar.

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