Coffee Traders' Forum - A Discussion about Coffee Futures Trading
Coffee Traders Discussion Forum
End of Day 1-11-16
*An early morning slide in Coffee prices precipitated slightly lower implied volatilities. Some clients who continue to have a short bias have sold long dated calls against the purchase of slightly shorter dated puts. This is an attempt to capture some of the cost of carry prevalent across board. Once again, Calendar Spread Options were quite high in volume with the 2-Month CSO Jul18 -6.00 put trading .15 700x vs. -5.80/-5.75. Vanilla options, on the other hand had low volume commensurate with today’s small range. Unfortunately, overall Coffee volume was quite tepid and unless you had an interest in managing spread risk, or physical positions, you were mostly uninterested in today’s session.
*Highlighted Trades Today:
250 1-Month CSO Mar18 -2.40/-2.15 call spread traded .08
180 Mar18 127.50/120.00 (1x2) put spread traded 2.60 vs. 122.35
150 Mar18 125.00/135.00 call spread vs 122.75Δ30 traded 1.72
Coffee’s 185-point range point today precluded scalping any gamma. With the roll coming into play in the near future, Calendar Spread Options provide the opportunity to remove some or all of your risk for a very reasonable premium. When you think that the latest Z/H expiration moved 45-tics in a short period of time, depending on your book they can make a great deal of sense. Lastly, the one-day at the money straddle in Coffee traded around 1.50. It’s an interesting break-even point for one day.
Cotton and Sugar continued their recent runs with movement well beyond their break-even trading requirements. Implied volatility was more than 3% higher in Cotton as the market approached limit-up. The market’s strength has been met by an equally strong surge in at the money implied volatility which is up 6% (including the skew) during the low and high of the last week. At the end of the day in Coffee, Cotton was limit-up. The figures in the chart below only reflected information before the limit move. In addition, there were about 3,800 December options which traded included 500 Buy 2x Dec18 72.00 calls - Sell 3x Dec18 80.00 calls traded 3.70 vs. 75.07.
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.