FCOJ – A Retracement Ahead

On the one month relative performance OJ has been the best performer with November futures higher by 12% as of this post. Me being a contrarian I’d like to fade this appreciation with clients. As one can see prices have been running into resistance for the last two weeks just above current trade as identified by the white solid line near $146.50. Since penetrating the 50 day MA (red line) on 7/16 futures have tread water not wandering more than a nickel above that pivot point. Stochastics are also overbought currently trading at 84/86. I am operating under the influence that futures turn south and am advising clients to use the Fibonacci levels on the chart below as exit level.

OJ Futures
OJ Futures chart, July 31, 2013

As opposed to trade a naked short futures my preferred method to manage my exposure and provide a cushion is to sell a put option 1:1 against the futures. Today clients were shorting futures and selling $140 puts and collecting approximately $900 per. The play gives me 80 days from today. Presently these options have a 38% delta so we should realize ballpark 50% of the move on a trade lower. Conversely it gives us some wiggle room in case I am wrong on my futures leg. Collecting 6 cents protects us even if futures trade up to the 13’ highs made in late May/early June…which I do not expect unless we get a freeze scare here in Florida.

Relative performance of commodities and OJ
Relative Performance of Commodities

Click on link to purchase Research:

Bradbard Research

As always, I’m here to discuss specifics and give guidance. Shoot me an email…Give me a call… you can reach me at: mbradbard@rcmam.com or 954-929-9997

Risk Disclaimer: This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities and/ or financial products herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed to be accurate. You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. This report contains research as defined in applicable CFTC regulations. Both RCM Asset Management and the research analyst may have positions in the financial products discussed.