General Mills (NYSE: GIS) engages in the manufacture and marketing of branded consumer foods worldwide. It also supplies branded and unbranded food products to the foodservice and commercial baking industries.

Grain commodity prices have traded near all-time highs and some traders are projecting higher prices in the near term.

Options trading investors should consider that higher commodity prices will be a challenge to firms like GIS as they seek to maintain market share. If these firms want to pass on the higher costs, the economy would need to show signs of improvement, employment improvement and wage increases. Because we have a short-term bearish outlook on jobs and wages, we do not think the higher input prices can be fully passed on to the consumer.

With GIS trading at 37.25, an investor could purchase the out-of-the-money GIS May 36 Put for a premium of $0.20. The break even on the trade is the 36 strike minus the .20 cent premium, or $35.80. The investor’s only risk is the premium.

Any price lower than $35.80 before May 20 expiration day is profit. GIS is a decent company and we generally like consumer staples, but for the short-term we are bearish and we looking for a move lower.

Stutland Equities is a premier futures and options trading company on the Chicago Board Options Exchange. Founded in 2005 and headquartered in Chicago, Stutland Equities specializes in volatility arbitrage across multiple asset classes.