Coffee Traders' Forum - A Discussion about Coffee Futures Trading

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Coffee Traders' Forum

Nugent/Oltarsh Options Review *PIC*

Options Review 5-14-18

*For the sixth time in seven trading sessions, Coffee prices fell. After reaching a high just shy of 126.00, July Coffee is now trading around 118.00. Despite an eight-cent range and good options volume, the historical and implied volatility remain sedate. Trading ranges are relatively narrow and it’s difficult to generate any abrupt moves. Owners of options must remain extremely patient and sellers may have difficulty making up the difference between historical and implied volatility because of the recent trading pattern. Volume in Coffee options remained strong today, with more than 19,000 lots trading. Unfortunately, today’s volume, while significant, in and of itself, is not indicative of an overwhelmingly directional bias. There was significant activity for both long and short hedgers and establishing positions to meet your hedging requirements remains the most appropriate options trading strategy.

*Highlighted Trades Today:
150 Jul18 120.00/117.50/115.00 put ladder (tree) traded .60 vs. 118.55. Paper sells.
350 Buy U18 115.00 puts, Sell18 125.00 calls, U18 145.00 calls traded -.45 vs. 120.60. Paper sold put. 500 Jul18 122.50/115.00 (1x2) put spread vs buy 118.30Δ28 traded 3.38/3.30. Paper sells.
100 Aug18 160.00/180.00 call spread traded .13 vs. 120.05. Paper buys.
150 Dec18 130.00 call traded 5.30 vs. 123.60 22.62 IV. Paper buys.
200 Jul18 117.50 straddle vs sell 117.70Δ5 traded 4.43 17.20 IV. Paper sells.
150 Aug18 KC 117.50 puts vs 120.00Δ36 traded 2.26 17.20 IV.
250 Sep18 120.00/130.00/150.00 call ladder (tree) vs sell 120.00Δ14 traded 1.70.
100 Sep18 120.00 puts vs 120.30Δ48 traded 4.47 19.30 IV.
500 Jul18 120.00/115.00 fence (to the call) vs 117.70Δ60 traded .32. Paper sells.
250 Sep18 120.00 conversion (to the call) traded .01.
125 Jul18 115.00/110.00 put spread vs sell 122.50 call vs buy 117.60Δ43 traded .03.
100 Jul18 130.00/110.00 strangle traded .47. Paper sold.

Today’s most actively traded option in Coffee was the July 115 put. Not only was it the least expensive July option in terms of implied volatility, it was only a 100-point option. For those of you expecting new contract lows, this may be an excellent option for a spec. As we continue to head towards lower strikes, the implied volatility continues to recede. The at the money straddle prices get pretty inexpensive. If your timing is good, you can pick up the at the money strike and wait for some Gamma to kick in.

*Other Commodities:
Although it had another good range today, Cocoa’s 82-tic range was short of Cocoa’s average true range of 98-points. In addition, its break-even point failed to make it on either side of unchanged. Sugar, whose expiration of June options is tomorrow, has had a volatility implosion. Its one-day straddle is priced at about 14-tics which translates into a 24.64 IV. That happens to be in between the 20 and 50-day historical volatility.