Coffee Traders' Forum - A Discussion about Coffee Futures Trading

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Coffee Traders' Forum

Nugent/Oltarsh Options Review *PIC*

Options Review End of Day 3-1-18

*When the July 14.50/15.00 call spread trades 7,000 times in Sugar, accumulating 14,000 by about 8 AM, it’s hard to pay close attention to the volume that trades in Coffee options (approx. 11,500 on the day). Unfortunately, the Grains, Sugar, Cocoa and Cotton are all more interesting markets than Coffee. That certainly covers quite a few agricultural commodities. Although today’s rally seemed like an explosion compared to recent movement, a 255-point range in Coffee does little to entice new players. Perhaps if we can break through some upside resistance, we can get some short-covering and a change to current trading norms. While options volume was reasonable, Coffee traders seek a significant change in pattern. For a comparison Coffee, Sugar, Cocoa and Cotton had the following percentage ranges on the day: 2.09%, 3.29%, 3.74% and 2.88%. Was it really a big day in Coffee?

*Highlighted Trades Today:
400 Robusta 1-Month CSO May18 -15/-30 fence (to the put) vs. -27.
1000 Robusta Jul18 1800/May18 1750 call spread vs - Jul18 1783Δ48, + May18 1757Δ54 traded 17. 250 Robusta May18 1800/1850 call spread vs 1755Δ13 traded 15.
250 Robusta 1-Month CSO Jul18 0/-5 fence (to the call) traded 4 vs. -1.
850 Jul18 140.00 call traded between 1.50/1.85 early.
400 May18 130.00 calls vs 123.40Δ28 traded 1.70 23.72 IV. Paper buys.
275 Dec18 165.00/Jul18 140.00 call spread traded .67 vs. N18 125.75
200 Jul18 130.00/120.00 strangle traded 6.75 200x vs. 125.75. Paper sells.
250 May18 120.00 puts vs 123.70Δ32 traded 1.90 20.18 IV. Paper sells.
300 May18 130.00/140.00 call spread vs 123.75Δ18 traded 1.17.

While Coffee finally put in a noteworthy session, a nice pop above 125.00 in May would probably be needed to see some shorts get concerned. Today’s slight increase in Coffee implied volatility was mostly due to a higher at the money strike on the skew. With the historical volatility, shown below, at historically low levels, the fact that there is a slight IV over HV premium is not significant.

*Other Commodities:
The Grains continue to go higher on a daily basis with Wheat leading the way. While its impossible to pick a top in Soybeans there are reasons to think that a turnaround is a distinct possibility. The new COT report may shed more light on how the positions are stacked up. For those willing to trade a short-term move, April puts are the cheapest options on the board. For those that are quite confident in a short position, any put buying can be financed with a July 1x2 Call spread that buys one and sells 2 for a credit. There are numerous ways to make money on the 1X2 Call spread. The 1140/1180 for a 7.00 cent credit becomes a nightmare after 1220 on the upside. There are a multitude of positions that might be interesting if you have a strong bias.