The Collar Explained
November canola has been trading between $442/ton to $452/ton since the beginning of July.
Soybean oil increasing has been providing some strength recently for canola.
However, the Canadian Dollar possibly getting stronger could limit a rally in canola.
Canola prices may be staying lower going into the fall this year.
China issues with Canada, a depressed soy complex and global trade tensions are all to blame.
I believe any rallies seen should be considered selling opportunities using delivery contracts.
If canola gets another $5-$10/ton higher, there are low cost options strategy you can implement for protection.
You may not want to price your physical canola and instead use options for protection if you are unsure about your crop.
The exact strategy is called a ‘collar’.
It is where you buy a put option for protection, then help pay for it by selling a call option higher up.
For example, if you want to protect your canola out until January at the current $460/ton level a put option would cost $11/ton approx.
To help reduce the cost, you could sell a $480/ton call option and collect $5/ton.
That means you get protection until January for your canola at the current price for only $5/ton.