Simple option trade in wheat with little risk


In this article, we want to explain a relatively simple trade in wheat and bring you closer to the beauty of options trading. This trade was made in our $100,000 real money account.

Why a trade in wheat?

The choice of wheat was essentially for one reason: the CoT data indicated an overbought market and we wanted to do this with an option trade so as to not catch the optimal entry point. With the sale of options, the market can also move slightly against us and we do not come under pressure.

The chart at the time of our entry into the trade (June 6) looked like this:

Wheat chart

So, we see a more or less stable uptrend, and we may well be back to a higher high at that point. From a technical point of view, this spot is a little unclean. That’s why we decided to sell call options.

Why do we implement the wheat trade idea with options?

We have chosen to sell 2 call options with a strike of 645 and expiration date on September 18, 2018 for $ 0.05375. The decision was due to the reasons below:

  • COT data in an extreme (short signal)
  • our strike was at 645 and thus more than 20% off the current price
  • as an option seller, time is on our side
  • Implied volatility was not particularly low
  • planned premium income was just over $400 (take profit is $0.01)

And so how does the trade look like in practice:

Wheat Futures

Short explanation for the picture:

  • first black dashed line shows our entry point
  • second black, dashed line shows our exit time
  • the red dashed line shows the maturity of traded options
  • the orange line is the strike of the sold call options

As you can clearly see, the trade was already in our take profit on June 25, 19 calendar days later. The wheat price itself has not moved sharply down, but the slight downside, combined with falling implied volatility and the time decay, brought us $437.50 (minus fees):

Options on Futures

The margin was not even $800, which means we have a return on investment of more than 50% in less than 3 weeks. Of course, may now argue that $430 is a very small amount relative to the $100,000 account size, but one must not forget that this trade had very little risk and that performance arose in a relatively short time. Surely you would have been able to sell a larger number of call options without much hesitation, and that may be the only point that was not quite perfect on this trade. But, of course, the reason of our hesitation was very simple we had a calendar spread in wheat at the time and we wanted to reduce a cluster risk.

Where can I learn more about options trading?

In our Premium Service, we offer you the opportunity to learn more about options trading.

Quote of one of our premium members, Gehad:

“Tradimo Premium Service has been an excellent learning experience for me to start practicing trading options and futures while receiving invaluable advice, help and support along the difficult and challenging journey to become a successful and professional trader.“


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