Week 2: What Went Wrong

The week, I suffered substantial losses overall. I stayed in my contracts (short on December Corn) for only two days and managed to first earn $237 on day 1 and then lose $1874 the next day (detailed calculations to follow).

The corn futures market closed lower on Tuesday and dropped further on Wednesday for a variety of reasons (http://www.thecropsite.com/news/12062/cme-corn-futures-closed-lower-tuesday) including downward pressures from the wheat market.

Seeing this, I decided to go short on corn on Thursday, which paid modest dividends at best – a gain of $237. The price in on Thursday was $7.21, which dropped to $7.1625. Therefore, by calculation, I made $0.0475/contract x 5000 bushels/contract x 1 contract = $237.5

Although I thought it was time I went long on Corn (given that lower expected harvests should push the price of corn up) I wanted to maximize profits by allowing price to fall to its lowest before going long.

That said, I did know that a quarterly crop report was to come on Friday morning. What I did not know was what to make of it. Will the prices continue to fall (to possibly their lowest), or will they infact assume the upward trajectory that is expected. With this uncertainty in mind, yet encouraged by my gains over the last two weeks, I decided to stay in my contract and infact took another short one.

This was a blunder because prices went limit up Friday morning (http://www.thecropsite.com/news/12093/cme-corn-futures-closed-limit-up-friday). Needless to say, I lost a lot of money. Specifically, prices went up from $7.21 to $7.56 for one of the contracts, so that resulted in a loss of $0.352/contract x 5000 bushels/contract x 1 contract = $1762. For the other contract, the price rose from $7.54 to $7.56, which resulted in a loss of $0.0225/contract x 5000 bushels/contract x 1 contract = $ 112