Kansas City/Chicago Wheat Spread: A Setup To Pyramid

On a Tear

The IMC blog entered a long position in the September Kansas City/Chicago wheat spread at -13 3/4 cents (premium CBOT wheat) on July 6th.  The spread reached a three and a half month high just this week before pulling back.

The current pullback gives us the setup we need to add to the position.  Quite simply, traders can add on a close above the August 2nd watermark high of +5 1/4 cents (premium KC wheat) and risk to just below the current pullback low.  Nice and neat.

September Kansas City Chicago Wheat spread daily

September Kansas City Chicago Wheat spread daily

Historically, inversions in the KC/Chicago wheat spread were followed by reversals where the KC wheat would go back to a premium of 35 to 40 cents or more over the Chicago wheat.  So buying a close above +5 1/4 cents (premium KC wheat) should leave plenty of profit potential for this ‘add-on’ trade.

‘Add-On’ Trade Strategy:

Place a hypothetical order to buy one September Kansas City wheat contract and simultaneously sell one September Chicago wheat contract on a close above +5 1/4 cents (premium KC wheat).  If filled, risk a two-day close of three cents below the pullback low that precedes the entry (currently at -4 1/4 cents).

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