It’s A Commodity Bull

Wow, if you aren’t long you are wrong in commodity markets this year. There is so much money being tossed into commodity funds and those funds are buying. Price is no object, just buy and walk away. Hard commodity prices have been on a tear if you haven’t been looking. Grains, meats, oil, all up. The run up in commodity prices has filtered into the agricultural stock sector. Today, Cargill announced that it was divesting itself from Mosaic, a fertilizer company. Mosaic now looks ripe for a takeover.

The bull market has found its way into the $CME seat market, but not into it’s stock price. The price is pretty much flat on the year. You would think that anyone playing a commodity boom would buy it, but that has not been the case. It did have a nice rally in December of 2010, but still was down on the year. $ICE is a similar story this year.

As a trader, you really can’t step in front of this freight train. All you can do is trade in and out if you aren’t on board. At some point, these rubber bands get stretched and will snap back the other way. But, unless you have a bottomless supply of money you cannot fade it.

The only way to position yourself in the market now is to look at the options pit. If you think the rally is over extended and running on fumes, buy some out of the money put options and take a shot. Your downside risk is limited, and the upside potential can be pretty lucrative.

As more and more algo and HFT trading permeates the listed futures contracts space, the only way for traditional traders to beat them is options. The options market is a request for quote marketplace. So far, it’s been tough to have that make a transition to the screen.

Something to think about the next time you want to try and position yourself for a rally or break.

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