Year-to-record highs recently reached by ag-based ETFs include –
- CORN ETF daily closing price – 50.076 on July 27th
- DBA ETF daily closing price – 30.32 on July 20th
- CORN ETF call options volume – 3,181 on July 17th
- CORN ETF options ATM estimated implied volatility – 47.4 on July 9th
(This is an update to the July 20 CBOE Blog — “Drought Options – Implied Vol Up 50% This Month for Some Ag-based ETFs” http://bit.ly/Drought1)
What can securities investors do about the 2012 drought? Investment vehicles that investors could explore include options on agriculture-based exchange-traded funds (ETFs). Here is a short list of three of the many such products (CBOE is not endorsing or soliciting for these products; please read the applicable prospectus) —
- DBA -PowerShares DB Agriculture Fund
- MOO – Market Vectors Agribusiness Fund
- CORN – Teucrium Corn Fund
Today at www.efinancialnews.com Rebecca Hampson noted that —
“Since June 15 the price of corn has risen 57% and reached a record high on Friday July 20 of $8.38 a bushel … The rally was driven largely by the drought in the US midwest – the worst since the 1950s – and poor stockpiles of corn on the back of a hot summer last year. The US is the largest producer of corn, accounting for 36% of production, according to data from the US Department of Agriculture. The drought in the US, with record-setting temperatures of more than 44˚C across the US midwest, has caused global corn production to fall nearly 5% in a month from 949.93m tonnes in June this year to 905.23m tonnes in July. …”
Brendan Conway penned a July 28 Barron’s story entitled “Harvest Time for Ag ETFs?” that commented on the DBA and CORN ETFs, and noted —
“… It’s worth examining what drives agricultural funds before diving in. …Agriculture ETFs are built to track the futures markets, not “spot” prices for wheat, corn and sugar. A normal, upward-shaped curve (contango, in traders’ parlance) will tend to act as a headwind for passive funds. But a stressed market like what’s seen today in corn and soybeans (called backwardation) tends to benefit holders of near-term futures. … Developing a view of where the curve is headed and grasping how a fund reacts to it are the keys to selecting the right one, says Mariana Bush, a funds analyst at Wells Fargo Advisors. … “
PRICES FOR ETFs
Last Friday the CORN ETF closed at 50.076, its highest close of the year, and 38% higher than the end-of-month price in May. The DBA ETF had its highest daily closing price of the year of 30.32 on July 20th.
JULY TRADING VOLUME FOR OPTIONS ON CORN ETFs
The trading volume for options on CORN ETFs in July (through July 27) was 20,156 puts and 31,222 calls, for a put/call ratio of 0.65. Some analysts examine the put/call ratio to attempt to discern changes in investor sentiment. The volume for CORN ETF call options reached 3,181 on July 17, its highest call options trading volume day of the year.
IMPLIED VOLATILITY FOR CORN AND DBA ETF OPTIONS
According to Bloomberg analysis, the implied volatility for both CORN and DBA ETF options has risen since the end of May. On July 27, the implied volatility was around 41 for CORN ETF options, and around 21 for DBA ETF options. The level of implied volatility can have an impact on the costs involved with a protective put program, and the income received from a covered call strategy.
CBOE OPTIONS ON ETFs
Key features of CBOE options include:
- Clearance of transactions is guaranteed by the Options Clearing Corporation
- Price and Quote Transparency
- Daily Mark-to-market
Bullish options strategies include: (1) long call, (2) bull spread, (3) call backspread, and many others.
Bearish options strategies include: (1) long put, (2) bear spread, and put backspread, and many others.
To learn more about CBOE options strategies, please visit —
More information on CBOE Options on Commodity-based ETFs is at —
RISK MANAGEMENT CONFERENCE IN EUROPE
The topic of volatility will be covered by several speakers at CBOE’s inaugural Risk Management Conference (RMC) in Europe. Now in its 28th year in the U.S., the first RMC Europe will be held on 5 – 7 September 2012 at The Ritz-Carlton Powerscourt, County Wicklow, Ireland. Topics include “Forecasting Volatility and Volatility as an Asset Class” and “Trading Implied Volatility.” www.cboermc.com/Europe