I’m personally going to nibble on the long side of the cotton market this morning. I’m not planning an aggressive stance I’m just looking for a short term play. One conservative method is to purchase out of the money calls, like the Dec 66 calls for around 80-90 points. Another in my view is to consider selling puts underneath. For instance selling the Dec 56’s for between 85-100 points allows you to collect a small premium and obligates you to owning a long December futures contract for each put sold at 5600, or in effect 5600 minus the premium collected.
Slightly more aggressive would be to implement both strategies, both selling the put and buying the call, in effect putting on a bull fence. More aggressive traders may choose a different strike prices, but for now suggest not seeking to sell anything above the 5900 puts at this time, as the trend is down and 6000 could be visited.
My reasoning is that prices may find additional interest. Why? Well for one, because prices have been down a lot recently and deserve a bounce. Second because 6020, (a 50% retracement number) held pretty well during yesterday’s session. Lastly, the lower prices should have had the ability to attract some cash market business especially from those who have been buying hand to mouth.
BTW, I also think that should prices show signs of recovery there will likely be a pick up in the pace of buying from short covering and if by any stretch of the imagination export numbers, (the demand side) shows improvement that would help. Even the hint of better cash business might be sufficient to encourage the rumor mill.
The market is still vulnerable, watch the impact of tomorrow’s CPI on equities, but I suspect the worst is over unless something new and bad comes into play. Poor exports have already been factored in and any improvement in those numbers might tend to aid a recovery. I will admit that if things don’t take a turn for the better things could get a lot worse.
This morning CTZ is showing 6050 in e-trading, with a high of, and the low.
The Dec/March spread is quoted
Since Dec settled outcry yesterday at the opening is looking better right now.
Support: 6000, 5900
Resistance: 6080-6095, 6160-6185, 6310, if Dec can get above 6310 and things start looking
by Jurgens Bauer
trading floor: (212) 748-3898
cell: (973) 652-4694
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