Bunge is an agribusiness and food ingredient company dedicated to improving the global food supply chain with raw and processed agricultural commodities and specialized food ingredients. Bunge stock has been holding support regions while the company is selling off several assets to cut costs.
Combined with this news and a Commitment of Traders report that shows several large funds lowering their exposure to agribusiness accumulation for the next 30 to 60 days, I suspect Bunge stock will continue to hold in the current range.
That opens a trading strategy that allows us to collect premium while we wait for the chart to resume an upward trend. Bunge stock holds a Composite Rating of 80, and the industry group rank is 129th out of 197. This type of rating works well for our plans with options here, as we are not looking for a strong stock.
The chart is rangebound since late October and now near the top of the range. Noticing also that we have declining volume with the last rise in price, it is reasonable to assume there is a stall of upward motion on the horizon.
As with many positions, I look for ways to generate revenue while I wait on price action to come into a favorable place, and this is within that strategy.
We will be using the short iron condor. This formation is a combination of a short call spread and a short put spread, which delivers premium while the stock chops within a range.
The Cboe Market Volatility Index (or VIX) continues to fade into levels not seen since 2021 and shows little sign of lifting, but the low reading still concerns me and will make me size a position smaller than I normally would.
Identify Key Chart Levels
First, a look at key chart levels. Sellers sit firmly near the 105 region, buyers near 94. The price trend is mixed, so ranges are likely to expand and then return to congestion.
Let's look at a combination of revenue-generation options. My preference is always to sell premium in low-volatility readings, like when the VIX is below 35. Once the VIX moves above 35 to 40, we must reconsider risk because the range of prices will expand.
This options strategy works well when we are looking at a stock that has a sideways weekly trend.
Looking at the February option chains, let's build the short call spread first. This part of the position assumes prices will not head north.
Bunge Stock Trade Setup
- Sell to open the Bunge stock Feb. 17 monthly 105 calls and buy to open the Feb. 17 monthly 110 calls.
And now the short put spread: This part of the position assumes prices will not expand south.
- Sell to open the Bunge stock Feb. 17 monthly 95 puts and buy to open the Feb. 17 monthly 90 puts.
At this writing, the premium for February's expiration is $2.25. The goal would be to allow this premium to erode to 50% of its value and then remove the exposure if the price is at the top or bottom of the range with increasing volume.
The risk lies in a rise over 105 or a fade below 95 at the expiration date. If this happens, the obligation will be the difference between the $5 spread (the distance between the spread strikes) and how much we collected ($2.25), which works out to $2.75.
Although this is the maximum risk, we will carefully watch the price movement to make sure that we do not expand into the maximum-loss event.
Possible Scenarios For Bunge Stock Option Trade
What could happen:
- The stock moves within and potentially beyond the range but returns to rest above 95 and below 105 by expiration. This yields the full profit.
- The stock moves into my 50% profit line – when the position is worth around $1.12 – and I exit the trade.
- The stock rallies and moves over 105 with volume for more than three days. This means we must exit because the chart is in a breakout.
- The stock fades and moves below 95 with volume for more than three days. This means we must exit because the chart is in a breakdown.
The short iron condor is a common tool for time decay to create revenue stream. However, I rarely hold these into the expiration. Instead, I will look for 40%-50% of the position to erode and then exit. More than often, this allows me to consistently manage my profit.
You can find me on Twitter at @AnneMarieTrades.
