Coffee (KCK19): 15 March 2019

[TradingAdmin]

Coffee is another market I've been watching closely, it came down hard and has now turned sort of flat.  Maybe it will turn back up, but how long will it take to do that?  However trading it with options give some ideal opportunities to hedge the risk in the position.

We trade it using a similar idea as the Cotton trade posted earlier - but this time using Call options.  We short TWO (2x) Call Options just above the market, then hedge the position with a Long Call just one strike price higher, but in the next contract expiry month (JUN'19)



We cannot loose on the downside, thus Coffee continuing its downwards bias, we take home about $200 on this trade.  Note how Coffee will have to turn up rather steeply to put the position in danger.  If somehow it does that, we can manage the trade by simply buying back one of the Short Calls, turning the position into a Calendar Spread, very low risk and capturing profit if Coffee is trading up / level.

[TradingAdmin]

Update:  Tuesday 19 March 2019



The weekend saw as making $100 on this trade.  Let's hold on another day or two and see how it develops

[TradingAdmin]

Update:  Tuesday 26 march 2019



We are sitting on $420 profit at the moment, which is really not too bad.  On the positiongraph (left) we are sitting on the pink line.  The green line will be the position next week Monday.  If Coffee continues down in price, there is really no further benefit in holding onto the position, then you might as well take the profit off the table. 

In order to get us to the $800 target region, we need Coffee to correct upwards, but not too fast.  You can see a move back to around 98 by next week Monday leaves us at the same place we are now - we would really like for it to take its time if it would like to correct a bit up. 

For the moment just hold, we'll monitor it daily..  Exit on any sharp moves.

(On the other hand, there is nothing wrong with taking the profit while it is on the table)

[TradingAdmin]

Last week we decided to hold on a bit more, hoping for an upwards correction in Coffee, which did not happen.

This week the position looks like this:



Coffee continued down.  Our profit increased from $420 to $440 - not really worth the extra week of risk we took.  At this point in time there is not really any point in keeping the trade, just take your money and get out.  (Yes, there is still a chance that Coffee can go back up, but (1) there is no indication from the price chart that such a move is likely and (2) there are very little time left before expiry)