Using Options for Downward Continuation in Coffee

April 11, 2018 7:48AM CDT

Sizeable exports from both Vietnam and Brazil continue to put downward pressure on May coffee prices. The Hightower Group has reported “the prospects for coffee’s top two growing nations continue to lean bearish”, and the price action continues to support that statement. There is no real change from the past couple of weeks for coffee. There is no doubt that for the foreseeable future, the bears have control of this market. Continued violations of key support areas (most recently 11686) have been followed by tight corrections and continued selling. The next area of support on the horizon will be the 116 area, and we will be paying close attention. If this area is violated, expect a correction (possibly back to the 120 level), and engage in a short position at that time. Traders can position themselves for a long-term downward continuation using long put options that allow exposure and leverage, while managing risk effectively. In addition, buy equal-numbered quantities of options, so that you can remove half of the position when the option value doubles (thus eliminating the premium risk).

Coffee May '18 Daily Chart

Coffee May '18 Daily Chart

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that RJO Futures believes to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgement at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

Distribution in some jurisdictions may be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction with registration, the market commentary in this communication should not be considered a solicitation.