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Nugent/Oltarsh Options Review *PIC*

Options Review End of Day 4-3-18

*Yesterday’s 295-point range was clearly an aberration. It was the largest range since March 15th and substantially larger than the average true range of 202 points. Today, Coffee returned to its low volatility (small range), trading environment. While yesterday’s London closing might have been expected to temper interest the New York market, that wasn’t the case. Today’s volume and range widened in the May/July spread as we heat up towards the roll. Unfortunately, the only trading in CSOs were in London where more than 1,700 puts and 1850 calls traded (see below). The May/July Robusta spread had a 9-tic range and that spread should become pretty volatile in the next few weeks. If you look at the structure of the pricing of these Calendar Spread Options it is apparent that the market is willing to pay higher prices, comparatively, for calls than puts and is indicative of the fact that there is a large group of traders who think that the May/July Robusta spread will trade similarly to the March/May spread that expired last time. While volatility in spreads should continue, I wouldn’t be as confident to say that about outright Coffee futures. That said, an at the money straddle for around 300-points with 8-trading days is pretty inexpensive.

*Highlighted Trades Today:
100 Jul18 130.00/135.00 call spread vs 118.25Δ7 traded .45.
250 Jul18 120.00/130.00 call spread vs 118.90Δ26 traded 2.32.
100 Jun18 120.00 calls vs 119.00Δ44 traded 2.70 19.64 IV.
200 Sep18 110.00 puts vs 121.00Δ20 traded 1.65 19.73 IV.
100 Jun18 120.00 puts vs 118.30Δ63 traded 4.05 19.41 IV. Paper sold. 100 Sep18 160.00/180.00 call spread traded .47 vs. 121.00
600 1-Month CSO May18 -30/-40 put spread traded 4 vs. -19
525 Robusta 1-Month CSO May18 -30 put traded 7 vs. -19.
600 Robusta 1-Month CSO May18 0 call traded 7 vs. -18.
1250 Robusta 1-Month CSO May18 5 call traded 5 vs. -18.

In a carrying charge market, with a downtrend, the allure of out of the money put butterflies seems compelling. It’s certainly been successful the last couple of rolls. While the bearish tone may not last forever, the risk/reward of these trades has been quite reasonable. Find something that meets your risk appetite. December 120/115/110 is worth looking at.

*Other Commodities:
Cocoa finally hit a snag and was unable to hold yesterday’s rally once London opened. The market remains extremely volatile. One problem with Cocoa options is that the market gets somewhat illiquid as we approach expiration making it difficult to liquidate positions in a cost-effective manner. Slippage is worth analyzing in all markets. To put Cocoa’s volatility in perspective, last night the May 2650, at the money straddle settled at 84-tics. Today, at the lows, it had 173-points of intrinsic value.