$WEAT – The Big Short via /r/wallstreetbets #stocks #wallstreetbets #investing

$WEAT – The Big Short

For a variety of fundamental and technical reasons I believe that the options market is not currently in convergence with the futures market regarding wheat pricing. I feel that the volatility premium, while high, simply fails to account for the fact that wheat is a commodity, not some coinbase listing.

Wheat is currently at overbought on the daily candle RSI, it is trading at all time high prices, and is experiencing a large amount of retail volume from people like us.

The WEAT ETF is currently experiencing 20 million in share volume while average used to be in 4-6 million share range. This, combined with sentiment analysis of wallstreetbets, stocktwits, etc. show that wheat prices, at least in this ETF, will be artificially pumped by retail volume rather than institutional worries regarding wheat prices.

While Russia and Ukraine are some of the largest exporters of wheat, the US Midwest and Southeastern harvests of wheat occur in the mid spring and early summer, ending in approximately Juneish. Of course, futures price this in. Nearly everything is priced in. Increased supply = lower price of wheat = ETF goes down.

Yet I feel that the ETF itself will return to its normal price in the 5-8 dollar range with the harvests of wheat adding supply to the markets, resolution or development in the Russia/Ukraine conflict, and the simple fact that companies are simply scrambling for wheat right now. The futures expire THIS MONTH, so we can reasonably expect prices to be elevated as buyers and sellers try to figure out a market without Russia or Ukraine.

Additionally, I feel that retail traders, who tend to bias stocks more towards the upside (and bought this ETF in the 10-12 dollar range by the time it trended) will start to exit their positions as they realize the overextension in wheat’s bull run is not sustainable. After seeing a decline in trading volume (which caused the pump in the first place) I see a selloff in the future in order to align with the more reasonable futures prices.

TLDR there’s gonna be a lot of wheat bag holders who bought the second they saw it trending up 30%. Estimating the top of this insanity to be around $13-$13.50 a share in the next few days. Futures are pricing in this decline but this ETF is gonna see a selloff that options haven’t accounted for.

Positions: I’m planning to enter Apr 22 and Jul 15 puts (11p and 10p respectively) sometime tomorrow if WEAT hits my price target.

Submitted March 08, 2022 at 06:43AM by TerabyteFury
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