As of this post coffee prices are higher by 4.44% with prices approaching previous resistance just below the 50 day MA (light blue line) that was challenged last week. Prices appear to be on the rise as money managers bought the dip this week when prices were trading near three weeks lows. I anticipate funds piling into coffee longs next week buying upwards of 10,000 contracts as they re-balance their positions at the start of this new year. That addition would raise open interest by almost 8%. Producing countries will likely cap this market from raging higher but I do think prices could gain an additional 5-10 cents from current trade especially if short covering plays out.
Coffee Futures Trade ideas:
- Long (1) in the money March $115 call for under $1800 and sell (2) March $125 calls for $525 per. You would collect just over $1000 and pay $1800 so out of pocket premium is $800 plus three transaction costs. I see a grind higher so you may be able to offset on higher trade or hold until expiration as I do not see future sustainable above $125 considering current supply and demand. The trade has 41 days and currently has a favorable delta of 13%.
- Long May futures and sell an out of the money May call 1:1. Selling a $120 would give you just better than a $2000 cushion. You should pick up approximately 1/2 of the underlying move. 99 days until expiration and look for an exit if futures were to rally 5-10 cents rally in the coming weeks. Offset both legs at the same time.
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[typography font=”Cantarell” size=”11″ size_format=”px”]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.[/typography]