Coffee Traders' Forum - A Discussion about Coffee Futures Trading
Coffee Traders Discussion Forum
Options Review End of Day 3-9-18
*Today’s 145-point range in Coffee summed up the entire April options series. Today’s expiration was the culmination of what has been an exceedingly uninteresting several months. It’s impossible to discuss strategy in Coffee unless you have an inherent risk management need. Then, there are numerous strategies which can enhance your ability to fine-tune your hedging requirements. The NCA meeting in New Orleans next week provides the opportunity to discuss hedging methodologies which you may not have thought about but could be quite helpful.
A final note about the April options series. There were 2770 puts and 486 calls at the 120.00 strike going into the day. It’s not surprising that the market was able to gravitate to that strike. The 122.50 strike, on the other hand had 2134 calls and 1017 puts. In either case, the most interesting thing, and it absolutely makes sense, is that the 120 calls had an open interest of less than 500 lots. That’s because there was very little time to trade April 120 calls as an out of the money option.
*Highlighted Trades Today:
1000 Sep18 110.00/100.00 put spread vs 125.00Δ12 traded .93.
150 Jul18 140.00 calls vs 122.95Δ12 traded 1.30 25.04 IV.
200 May18 117.50 puts vs 120.50Δ32 traded 1.64 19.38 IV.
250 Jun18 137.50/May18 135.00 diagonal call spread traded .60 vs. 121.00 in K8. 600 1-Month CSO Dec18 -3.45 put traded .17 vs. -345/-3.40.
Given the lack of volatility, butterfly spreads in Coffee can be used for low risk additions to current hedging requirements. One butterfly I have touted was the July 120/115/110 butterfly. Butterflies, at the right pricing, enables one to be short volatility and take advantage of the roll. If you have a bullish opinion, the butterflies can be equally interesting. The key to them is tremendous patience. If you’ve been trading Coffee, you’re patient.
Post-WASDE plus one is more interesting than post-WASDE. The Grains traded lower in concert as digestion of yesterday’s report coupled with potential rain has the market on the defensive. Our relatively low risk July 1140/1180 1X2 call spread looks like a reasonable choice given what had been a market with a relatively high Relative Strength Index. Unfortunately, the April out of the money puts haven’t moved much and time is running out. If the futures can continue to lose ground at this pace, however, the April 420 puts could be in the money in no time. The Cocoa market continues to impress. Today, on the short side. Cocoa’s dramatic fall from another session of highs (2539/2452) and today’s range of 87-tics indicate just how exciting the Cocoa market is.