Meierya Futures: Soybean Meal Weakness Remains Hidden High

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1、 Review of subject market

Due to the impact of weather on harvesting, trade war or mitigation, USDA supply and demand report and other factors, CBOT soybean The contract remained volatile, closing at 886 cents/bushel weekly. In China, DCE Soybean meal The 1901 contract stopped falling and corrected. The weekly line closed at 3142 yuan/ton, down 0.4% month on month.

The 2018 US mid-term elections were held on the 6th local time. According to the results of the vote count, the Democratic Party won at least 222 of the 435 House seats in this election, regaining control of the House of Representatives, while the Republican Party won at least 51 of the 100 Senate seats, consolidating the majority position of the Senate.

The Sino US trade war continued, and there were major problems in the long-term soybean supply. However, there were many negative factors even for soybean meal. Soybean meal stocks were high, African swine fever continued to spread, and there were new provinces found African swine fever, and new feed standards had been released. Therefore, it is expected that the futures market in the future will be weak. We should focus on the G20 China US leaders meeting and the implementation of new feed regulations.

Chart 1: Trend of CBOT soybean main continuous contracts

Data source: wind, Meierya Futures

Chart 2: Trend chart of main continuous contracts of soybean meal futures

Data source: wind, Meierya Futures

2、 Analysis of options trading position

The trading activity of soybean meal options decreased last week, with a total trading volume of 679936 hands, a 32% month on month decrease. On Friday, the total positions were 617984 hands, an increase of 5% year on year. The trading volume PCR value was flat less than 1, while the position PCR continued to decline, and the market sentiment was neutral.

Chart 3: Total turnover of soybean meal and PCR trend

Data source: wind, Meierya Futures

Chart 4: Total position of soybean meal and PCR trend

Data source: wind, Meierya Futures

Last week, 586014 M1901 series options were traded, down 33% month on month. Positions rose steadily, with a total of 437522 positions on Friday, up 6% month on month.

Figure 5: M1901 Option Trading Volume and PCR Trend

Data source: wind, Meierya Futures

Figure 6: M1901 Option Positions and PCR Trend

Data source: wind, Meierya Futures

3、 Option Volatility Analysis

Last week, the historical fluctuation rate of soybean meal main chain ran smoothly, and HV hit a record high on the 10th; The implied volatility of main contract series options continued to fluctuate at a high level.

Chart 7: Historical Volatility Trend of Soybean Meal Standard

Data source: wind, Meierya Futures

Figure 8: Term structure of soybean meal options

Data source: wind, Meierya Futures

The historical fluctuation rate of soybean meal is high, and the latest value is near the 90th percentile; From the perspective of term structure, long-term volatility is significantly lower than short-term volatility.

Chart 9: Historical Volatility Cone of Soybean Meal Standard

Data source: wind, Meierya Futures

4、 Option Trading Strategy

Trend strategy: The Sino US trade war continues, and there are major problems in the long-term soybean supply. However, there are many negative factors, high soybean meal inventory, the spread of African swine fever continues, and new provinces have found African swine fever, and new feed standards have been released. Therefore, it is expected that the futures market will be weak, and it is recommended to sell dummy call options.

Volatility strategy: the implied volatility of the main series of soybean meal options is at a high level. Considering the weak shock of soybean meal, the portfolio can be increased when the single leg strategy is withdrawn, and the sell straddle or wide straddle strategy can be selected.

Meierya Futures and Options Team

Editor in charge: Song Peng