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Coffee Traders' Forum

Nugent/Oltarsh Options Review *PIC*

Options Review 5-7-18

*Although markets were closed in London, Coffee and Cocoa managed to find significant volatility. Coffee plunged for the second consecutive session and tested the 120 level in July. Options volume remained notable and the decline to a new at the money strike included another decline in implied volatility. The decline in the underlying provided an opportunity for a fresh look at options strategies at this price level. Although last week showed potential for a new area of upside exploration, the recent plunge may provide an opportunity to position oneself against the trend with limited risk. We’re currently exploring strategies that make sense for hedgers on both sides of the market given our latest price level. Let’s discuss something creative for your situation.

*Highlighted Trades Today:
100 Aug18 125.00 puts vs 124.90Δ50 traded 4.62 21.03 IV. Paper sells.
100 Sep18 140.00 call traded 2.05 vs. 123.05 28.51. Paper buys.
550 Sep18 125.00/115.00 put spread vs 123.40Δ32 traded 4.90. Paper buys. 200 Jul18 125.00/120.00 (2x1) call spread traded -.10 vs. 120.40.
250 Sep18 122.50 calls vs 122.75Δ52 traded 5.50 21.18 IV.
250 Dec18 165.00/110.00 fence (to the call) vs 126.00Δ25 traded .55.
150 Jul18 130.00/125.00 (2x1) call spread traded.05.

*Suggestions:
On Friday, we discussed the pricing of June options which expire this Friday. Today’s move was all you needed to pick up the Gamma necessary for a profitable trade. Lots of people enjoy selling options to collect decay, short-term options however, provide the opportunity to take a position which can move substantially if you pick the right direction. Those who bought Gamma on Friday were rewarded for it.

*Other Commodities:
Cocoa continued to be the commodity with inexpensive options. Although Cocoa’s options have a break-even point of just over 50-tics, today it traded as much as 86-points higher at the highs. Although Cocoa is clearly the most volatile market; it had a 4% range today, Cotton traded by far the most options. The statistics pertaining to historical vs. implied volatility in Cocoa are listed below, as are an evaluation of the other Softs. We follow other markets as well, so if you’re looking for some information on that, please let me know.