Coffee Traders' Forum - A Discussion about Coffee Futures Trading


Coffee Traders Discussion Forum

Coffee Traders' Forum

Options Activity *PIC*

End of Day 1-10-16

*Smaller options volume than recently highlighted today’s Coffee session. Late selling of Strangles, shown below, boosted the final volume a bit and fluttered around uneventfully for most of the day. Although Coffee broke down early, it held yesterday’s lows. It’s average true range and break-even point from an options point of view were both broken and if you purchased straddles on yesterday’s close, you could have certainly sold them at a profit early this morning. The same scenario held true for Cocoa on the upside. The September fence shown below exemplifies how competitive the options market is. The liquidity is excellent and between the algorithms and market-makers the opportunity to establish a position with limited slippage, is better than ever. In the futures market, I would not make the same case.
*Highlighted Trades Today:
400 Mar18 120.00 puts vs 123.10Δ32 traded 1.80 21.70 IV
150 Sep18 155.00/115.00 fence (to the call) vs 130.50Δ38 traded .40
400 Mar18 135.00/115.00 strangle traded 1.00
200 Mar18 130.00/120.00 strangle traded 2.80
250 Apr18 130.00/145.00 call spread vs 126.00Δ26 traded 2.25
Robusta Mar18 1750 calls vs 1727Δ44 traded 41 900x 21.31 IV

*Suggestions:
In the low implied volatility environment that we are experiencing, it can be difficult to establish an options position to meet your market biases. Short-term straddles around the strike have been effective in Coffee this week because of the abrupt sell-offs. Typically, ratio call and put spreads are most successful if the implied volatility is well above the historical volatility and you are comfortable with a potentially short option position. Also make note that Cocoa options remain a bargain compared to Cocoa’s historical volatility. As discussed for a while, there have been numerous opportunities to trade the Gamma of a long options position.
*Other Commodities
One of the largest trades of the day was the Cotton Dec18 71.00/75.00 call spread which traded 1.95 1000x vs. 74.62. Interestingly, there was also interest in the July/Dec 10.00 CSO call which, if purchased, would have given the buyer the right to buy July futures 10 cents over December futures. It is currently trading just about 5.00 cents. An extremely large trade was the May18 69.00/78.00 call spread vs 79.50Δ33 which traded 6.70 2000x. As March Cotton approached the 80-cent level options volume soared.
The Table below shows approximate prices of straddles and implied volatility at the close of Coffee Futures today. It also provides Relative Strength, Average Trading Range and Historical Volatility as well as the Break-Even Point of the monthly options contracts and a review of daily trading information. A comparison between historical and implied volatility can provide valuable information as to the options relative value. In addition, RSI can be indicative of overbought and oversold markets. Data is provided by feed which may not always be accurate. Please call with any questions or discussion points.