Coffee Traders' Forum - A Discussion about Coffee Futures Trading

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Coffee Traders' Forum

Nugent/Oltarsh Options Review *PIC*

Options Review 5-3-18

*As open interest goes down, it is quite clear that short-covering is involved in the Coffee rally. Today’s price increase may bring more people into that club, although a close above yesterday’s high should really help. While options volume remained comparatively high, it was quite a bit lower than yesterday. Implied volatility was relatively flat and, as was evident yesterday, the premium of implied over historical volatility remains substantial. The options market remains extremely liquid and clients using strategies laid up with futures have been quite pleased with their results. Pick your strategy, or let us help you design something, and we’ll work to avoid slippage.

*Highlighted Trades Today:
100 Dec18 115.00/105.00 put spread vs 130.20Δ12 traded 1.68. Paper sells. 425 Jun18 122.50 calls vs 124.75Δ70 traded 2.97 19.47 IV. Paper sold.
600 Jul18 120.00 puts vs 124.75Δ28 traded 1.55 21.78 IV. Paper bought. 150 Jun18 122.50 calls vs 124.75Δ70 traded 2.95 19.18 IV. Paper sells
200 Jul18 125.00/Jun18 122.50 diagonal call spread vs buy Jul18 124.50Δ20 traded .63. 275 Jul18 122.50/117.50 put spread vs 125.00Δ22 traded 1.63. Paper buys.
175 Jul18 130.00/Jun18 127.50 diagonal call spread traded 1.16. Paper buys.
200 Jul18 125.00 calls vs 125.50Δ53 traded 3.90 22.74 IV.
100 Dec18 140.00/160.00 call spread traded 3.00 vs. 130.75 in Dec 18. 100 Sep18 110.00/100.00 put spread traded .39 vs. 126.75. Paper buys. 125 Aug18 135.00/137.50 call spread vs 127.50Δ5 traded .45. Paper sells. 1250 1-Month CSO Mar19 -2.30 put traded .25 vs. -2.25.

Last night’s settlements on the July/Sept CSOs priced the at the money straddle at 16-tics. That was due to the -2.40 puts trading 4-tics yesterday. Given that there are 26-trading days left in the July options, that is ridiculously inexpensive. Of course, it is a CSO and if it were 14-tics it would be very expensive. That’s the nature of hedging spread risk through Calendar Spread Options. The premiums are quite inexpensive and it’s very simple to eliminate spread risk. The amazing thing is that its much easier to eliminate that risk four weeks before expiration than one week. Although there’s a limit to how far the spreads can come in, theoretically, the limit on the upside is far less defined. For those looking for frost protection, a CSO is an interesting alternative.

*Other Commodities:
For the first time in a bit, Cocoa was not particularly wild, although it did have the largest percentage range in the Softs. The one day 28.50 straddle is priced at 46-tics which translates into a one-day IV of around 33%. There were only 337 options open for tomorrow’s June 2850 puts and calls. Any idea what the high and low will be tomorrow in July Cocoa? In other volatile markets, Stocks crapped out early, but crawled back to unchanged. Whether you’re bullish or bearish, all you need is an opinion to create extremely interesting options positions in the E-mini S&P.