Coffee Traders' Forum - A Discussion about Coffee Futures Trading
Coffee Traders Discussion Forum
End of Day 1-12-16
*Expiration day in February options went out in a whimper; the last trade 5-tics from the at the money strike. With two hours to go you could buy the G8 122.50 calls for 3-tics and they were only 110-points out of the money. That quickly described the limited prospects the options’ market saw for a rally. Last night’s average trading range of 235-points was equal to today’s range and kept the boredom quotient quite high. There were numerous CSOs quoted, but only one traded. As a former market-maker it’s almost shocking that you could buy an option so inexpensively like the one mentioned above. The definitions of market volatility have changed substantially. That said, it may be a good time to reduce risk or add to it in a manner that measures your risk.
*Highlighted Trades Today:
540 May18 150.00 call traded .75 vs. 124.15 27.75 IV
270 Mar18 125.00 puts vs 122.00Δ65 traded 4.88 22.77 Iv
250 1-Month CSO Mar18 -2.45 put traded .11 vs. -2.45/-2.40
240 May18 155.00 call traded .56 250x 124.45 28.54 IV
As quotes get tight in the CSOs, opportunity exists for all traders. Today the 2-Month CSO Mar18 -4.60 Call was .07/.10 750 up. That is more than sufficient liquidity to hedge spread risk or set up a speculative position. There are interesting strategies in outright options which can provide a similar mitigation of risk. It’s a matter of setting it up. Unfortunately, small ranges and uninteresting volume make it difficult to provide good suggestions unless they are in response to a particular hedging or speculative needs.
Cotton remains the most interesting commodity on the board, unless, maybe if you’re trading Natural Gas. Cotton had a more than a 4-cent range today, but after its early rally in which implied volatility continued its ascent, the market and implied volatility receded. We mentioned the K8 100/105 1x2 call spreads in which we bought the one and received a 50+point credit. The break-even would be 110.50. We were struck by the fact that despite a significant rally, the March, May and July contracts were trading at approximately the same level for the early part of the day despite the market still being higher. This would rarely be seen in such a bull market. Beans, Corn and Wheat waited eagerly for the WASDE report at noon and whether there was a rally or sell-off, implied volatility fell accordingly after the report was issued.
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.