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 3-2-18

*It’s hard to discuss Coffee when Cocoa had a 4% range and surged as much as 90-points higher on the day. Sugar with a 3.50% range, traded back towards the middle of its recent range and Coffee reverted to the middle of the 125/120 range we spoke of yesterday. Without anything new, or a technical break- through, Coffee spent most of the day sitting near the 122.50 strike. With the April 122.50 straddle trading less than three cents, the prospect of a big week next week seems dim. The larger volume option trades were made up mostly of spreads and there was nothing of a significant directional nature that would be a precursor to an interesting move.

*Highlighted Trades Today:
300 Buy 1x Apr18 122.50 puts - Sell 3x Apr18 120.00 puts traded .10 vs. 123.10. 250 Jul18 127.50/120.00 put spread vs 125.10Δ24 traded 3.95.
250 Buy 1x Sep18 150.00 calls - Sell 4x Sep18 200.00 calls traded .60 vs. 126.85.

Strategies for hedging remain the most reasonable choices for those interested in participating in Coffee options. It remains difficult to get short volatility at these levels. Examining the historical and implied volatility split shown in the table below provides the best basis for evaluating potential trades. Depending upon your hedging or speculative needs, the skew can be of a bit of assistance.

*Other Commodities:
Early gains in the Grains were met by significant selling. Wheat led the way lower and traded in a 25.25 cent range (approximately 5%). Even Soybeans, which hovered around unchanged for much of the time, had a 1.75% range. Implied versus historical volatility differences in Soybeans are about 6% for the April contract (premium to the implied). If you’re bearish, and comfortable with some upside risk, fences and/or puts vs. 1x2 call spreads can be a way to remain with a relatively neutral volatility position and find something that meets your risk reward criteria. Should the market sell-off, there will likely be a fairly large decrease in implied volatility. See Grain Options Information Below. The snapshot is taken at the time of the Coffee close.