We saw a continuation of the dynamic where the CBOT's greater volatility is a key driver to the intermarket wheat spreads. So when the CBOT headed sharply lower at the open, the premiums for MGE and KC increased. With the outright markets down around 10 cents, the MGE premium increased by around 4 cents. My strategy was to sell this premium strength as the factor sending the wheat market lower--strength in the dollar --is not particularly good for hard wheat vs soft wheat. So I thought I would be able to scalp a penny or two on the "noise."
Didn't turn out that way.
Even though the outright market stabilized above the morning lows, the premium for MGE did not fall back, but rather, crept out farther. Nobody likes to take a loss, so I reversed the morning's December intermarket spreads in the nearby May contracts and will try to unwind the calendar spreads that result with the view that the CBOT contango will steepen much more than the MGE. Tomorrow we'll see if this was an elegant maneuver or just pathetic flailing when cornered.
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