Large Call Option Spread Created in November Corn

It was reported on Wednesday afternoon that a massive call option spread, equating to 500 million bushels, was created in November corn. This position is a bet on a US weather market through the rest of summer and into fall.

However, a variety of market factors; technical, fundamental, and seasonal, indicate this position could be in for a rough ride. A look at the quote screen on Thursday morning revealed the Corn market in the green, most likely due to the latest 6-to-10-day forecast, which continued to call for above normal temperatures and below normal precipitation across the US Midwest.

The September issue (ZCU26) rallied as much as 3.75 cents on trade volume of 21,000 contracts and was sitting 3.25 cents higher at this writing. Meanwhile, the December issue (ZCZ26) added as much as 3.75 cents overnight on trade volume of 50,000 contracts and was sitting 3.75 cents higher at this writing.

The September-December futures spread has dropped back to its low daily close of 23.5 cents carry and covering a bearish 76% calculated full commercial carry. Further out, the December-March spread was sitting on a carry of 15.5 cents and covering a neutral 51%. Even further out in the 2026-27 marketing year, we see the May-July spread at a carry of only 3.0 cents and covering a bullish 3%, as compared to the 2026 edition of the spread closing this same week last year covering a still bullish 30%.

The September-December covering a bearish level of calculated full commercial carry tells us supplies, including some newly harvested supplies in the US Southeast, usually a point of comic relief when it comes to USDA’s September 1 quarterly Grain Stocks figure, outweigh demand. The December-March futures spread is covering a neutral level but posted a new low daily close of 15.75 cents carry on Tuesday, July 21 and covered 52.5%, meaning the trend of the spread remains down.

However, if a Down Escalator Simulator develops, meaning the Dec-March spread follows the same track as the September-December, then the downtrend of the Dec-March could take it to a similar level as the September-December. This means the commercial side of the market is not concerned about the 2026 US crop.

The May-July spread covering a bullish level of calculated full commercial carry could be the result of a couple factors: First, lower trade volume and open interest in deferred futures, and second, concern over Brazil’s 2027 production due to the much-hyped ‘Super El Nino’. It’s possible, maybe even probable, US demand stays strong through the 2026-27 marketing year.

According to USDA’s July WASDE estimate for 2026-27 US ending stocks, the estimate came in at 45.5 million metric tons, as compared to the June guess of 49.8 mmt and the 2025-26 guesstimate of 51.3 mmt. Even by USDA’s asterisk-laden standards, US supply and demand isn’t expected to be overly tight.

This massive call option spread trade has sparked a heated debate in the market, with many experts questioning its viability. According to P.J. Quaid, a long-time Chicago-based options trader, it was the biggest trade he had ever seen in grains.

The commercial outlook for short-term and intermediate-term supply and demand, according to futures spreads, is bearish to neutral. Based on both price distribution and Kernel Density Estimation, the futures market is statistically overpriced in the upper $4.00 range.

Seasonally, implied volatility (Vega) tends to decrease from late July through fall harvest. Why is this important? Implied volatility acts as a multiplier of time value, with the latter decaying (Theta) slightly each day.

A technical trigger for this call option spread trade could have been the latest extended forecast. A look at the daily chart of Dec26 corn and its 90-day moving average reveals that Dec26 had not closed above its 90-day moving average since May 28. The 90 DMA was calculated Monday near $4.73. Dec26 poked its head above the 90 DMA overnight through early Monday morning, registering a high of $4.75.

According to John J. Murphy’s Technical Analysis of the Futures Markets (1986 ed., pg. 252), no one moving average works best in each market. Or stated another way, each market seems to have its own optimum moving average that works best. This set the stage for Tuesday’s session, when Dec26 rallied to a high of $4.7650 before closing at $4.7525, above the 90 DMA.

The conversation gets more interesting when we look at the corn market. Recall from Monday’s Chart of the Day, I’ve been keeping an eye on two key technical statistics, according to algorithms, with the more heavily traded December issue: The 90-day moving average and daily stochastics. I’ll start with the latter, stochastics, a momentum indicator that shows Dec26 to be overbought on its short-term daily chart. If Watson is paying attention, this could be viewed as a trigger to start liquidating again after adding to its net-long futures position the last five trading days.