Coffee Traders' Forum - A Discussion about Coffee Futures Trading


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Coffee Traders' Forum

Nugent/Oltarsh Options Report

Light volume, inside the range trading session for Arabica. Low volume sideways to lower Robusta market.
Options interest has picked up.
Fred Oltarsh comments:
End of Day 1-4-16

*Three of the four markets: Coffee, Sugar and Cocoa all met their Break-Even points to one degree or another early this morning and proceeded to shave a significant portion of their losses. Coffee even closed with a gain. Cocoa options had certainly been a bargain with implieds running four volatility points below historical volatility depending on the choice of contract. The other markets all traded above historical volatility and would have been a challenging position to establish. Although implied volatility has increased in Cocoa, there may still be an option to buy volatility on the cheap.

*On the Day:

Early morning trades had the most volume in Sugar and Cocoa with the Jul18 1700/1800 (2x1) put spread vs buy 1865Δ10 trading 7 tics 1500x. In addition, 750 of the Mar18 1700 puts vs 1848Δ12 traded 12 in Cocoa. While more volume traded in Sugar, the trades were not nearly as interesting and in the context of implied versus historical, more worthwhile to look at.

The big trades in Coffee included two put spreads for a total of more that 2,000 spreads. The Mar18 115.00/110.00 put spread traded .23 and the Mar18 120.00/115.00 put spread vs 127.25Δ12 traded.82.

In addition, 250 Sep18 117.50/110.00 put spreads traded 1.30 vs. 135.35. Put spreads were definitely the trade of the day. The more that traded, the more the market rallied. If one purchased them hedged, it wasn’t a bad trade. The problem is the bid/ask spread.

*Overall options volume was excellent.

*Suggestions:

While the Coffee options market provides few interesting trades at this moment, for those with an opinion, it is much easier to structure a trade if you have a particular hedging or speculative need. Using the skew and historical and implied volatility differences, it is possible to find the appropriate position to meet your needs. Call us for a discussion.

As discussed in the past, the Cocoa straddles have been underpriced. Trading a long Gamma position is quite entertaining. It certainly has been in Cocoa recently.by feed which may not always be accurate. Please call with any questions or discussion points.