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Coffee Traders' Forum

Nugent/Oltarsh Options Review *PIC*

Options Review End of Day 4-13-18

*It’s almost a pin. With a fair amount open interest in the May 117.50 puts, the market wasn’t able to gain any momentum on the downside. Today was expiration of May Coffee options and options sellers who hedged their short gamma were, most likely, quite happy with their trading strategy. Fortunately, the spreads in Arabica and Robusta have been much more interesting than the underlying futures contract. The March/May Arabica spread had a 25-tic range today which makes for an interesting comparison to the March19/May19 at the money CSO straddle which has traded synthetically for approximately 35-points more than 700 times in the last few days. In the meantime, the May/July Robusta spread has traded in a 13-tic range the last two days. The Calendar Spread Options provide a very reasonably priced opportunity to hedge spread risk. With tens of thousands of spreads trading every day, there is a very inexpensive way to mitigate risk.

*Highlighted Trades Today:
175 Sep18 140.00 calls vs 122.00Δ20 traded 2.00 26.48 IV. 100 Jul19 127.50 puts vs 133.00Δ40 traded 8.00
200 Jul18/May18 120.00 put calendar traded 1.30 vs. 117.50. 200 Aug18 150.00 call traded .70 29.28 IV.
100 Sep19 127.50 puts vs 135.00Δ36 8.20
200 1-Month CSO Mar19 -2.35 put traded .16 vs. -2.30.
300 Robusta 1-Month CSO May18 -20 put traded 7 vs. -20/-19. 900 Robusta 1-Month CSO May18 -30 put traded 4 vs. -22/-21.

*Suggestions:
When valuing options many people value them on a trading day basis and determine option decay as such. That may be a somewhat reasonable assessment for most ags during much of the year when weather activity might not be that unpredictable over the weekend. For Stocks and Oil, however, this assumption may be quite flawed. News, particularly these days, can occur at any time so the idea that the weekend may not be as valuable in an option as any other two days seems worth noting. I’d be interested on your thoughts pertaining to that. One of the people I communicated with today conveyed that in a very interesting way.

*Other Commodities:
Crude Oil and E-minis continue to be incredibly news driven. Crude Oil’s implied volatility is trading a couple of percentage points below its 20-day historical volatility, however, well above longer term historical. If you have a directional inclination, using spreads might be a way to reduce the exposure to Crude’s comparatively high IV.