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Coffee Traders' Forum

Nugent/Oltarsh Options Review *PIC*

Options Review End of Day 4-6-18

*An early flush had the May/July Robusta spread trade to -3. It’s range of 20-points on the day showed how volatile this spread can be as we approach expiration on April 18th. Open interest in the May Robusta CSOs has reached a total of more than 12,000 lots. This is pretty good for a product that started trading recently. The volatility in the May/July spread was forecasted by the pricing of the options that have traded recently. High volatility in the spread should continue through expiration; although today’s range should be higher than usual. In addition to Robusta’s movement, Arabica spreads had good volume as well. As opposed to a $200 range in the Robusta spread, Arabica’s May/July spread traded in a $56.25 range. The 650 lots of May18 -5 calls which traded 6 vs. -16/-15 was one of the least expensive, in terms of value, May options traded recently.

*Highlighted Trades Today:
500 Sep18 125.00/140.00 call spread traded 2.90 vs. 121.00.
200 Jun18 135.00 calls vs 119.25Δ5 traded .33 26.17 IV.
150 Jun18/May18 115.00 put calendar traded .84 vs. 117.30 in K8. 500 Robusta 1-Month CSO May18 -30 put traded 6 vs. -10.
100 Robusta 1-Month CSO May18 -5 call traded 8 vs. -14/-13.
650 Robusta 1-Month CSO May18 -5 call traded 6 vs. -16/-15.

*Suggestions:
Once again, the range in Coffee (125-points) says everything about the market. Today’s Options volume was extremely low for a non-holiday. Given the lack of volatility, the tight markets remain a great opportunity for hedging. Consider the fair value of the following spread. It a bullish trade which buys the Z18 125.00/130.00 Call Spread vs selling the Z18 125.00/120.00 Put Spread with 125.00 in December futures. You can buy the call spread and sell the put spread for a credit of more than 1.00 cent. You’re risking 4.00 to make 6.00 and you’re at the money. This trade is available because of the implied volatility skew and the Black Scholes model.

*Other Commodities:
The Cocoa market opened with a whimper on Friday and the May 2500 straddle traded 40-points at 8:30 AM with May trading at 2500. There was open interest of around 2500 calls and 2000 puts for the final day of trading. Ultimately, a 40-tic straddle was not enough to cover the movement in Cocoa. It traded to a low of 2440. In addition to the Cocoa expiration, more banter about trade negotiations sent Grains and stocks to large, early losses. Once again, as the day progressed, the Grains recovered. While continued rhetoric can only hurt the markets, ultimately the rhetoric will die down and some type of deal will be met. In the meantime, Grains and stocks will remain unsettled. Surprisingly, Cotton, which day one had been strongly affected held most of yesterday’s gains. Lastly, make note that Coffee, Sugar, Cocoa and Cotton all traded in ranges less than their average true ranges. Sugar’s range was just 14-tics.