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Using Options for Downward Continuation in Coffee

Posted 04/11/2018 7:48AM CT | Adam Tuiaana

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

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Adam Tuiaana

Senior Market Strategist
Adam grew up in Chicago and was always fascinated by the fast-paced action found in the futures market hub there. He began participating in the financial markets by trading stocks in 1997 and began his career as a trading consultant with RJO Futures in March of 2009. At RJO, he specializes in risk management and disciplined trading plans, and is focused on educating clients with one-on-one consulting and training. Adam believes the best approach to trading is to take a measured and objective approach and let the markets guide your decisions.
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