Going Long Sugar After Our Last Option Expired

We owned a March Sugar #11 Call option (see our post here: We Are Long Sugar When Prices Broke Above 16.48 Today) that expired worthless on 2/18/14 yesterday.  Total loss:  $268.80 plus broker commission.  Then today, prices spiked above the #2 point of 16.58 in the wide 1-2-3 bottom formation (see Daily Sugar#11 chart below).

May Sugar #11 is currently at 16.49 at the time of this post.

We knew prices were going to move, but we missed it by what looks like a few days or so.   We are going to re-enter the Sugar market with a May option which expires in April, giving us a couple months.  We are very confident in prices heading higher towards the more conservative 50% Retracement level of 17.30 based on the most recent major move according to the Daily Sugar #11 chart – see below.  Typically, a wide 1-2-3 formation means a stronger move when prices break through the #2 point as they did today.  Therefore, we look to the Weekly Sugar chart (see below) to see where this more optimistic 50% Retracement level would be.

We purchased a 1675 May Call option for $828.80 which expires 4/15/14.  That’s just 2 strike prices out of the money and we are willing to pay a premium to get into this market at the 16.75 level.   Margin on a full contract is approx. $3000, so for a small move higher we will be in the money and will have only risked $828.80 (less than 1/3rd of the margin requirement).     If prices move to the 50% Retracement level of 23.28 (see Weekly Sugar chart below), we can make a very nice ROI on this trade.

If we consider the last major move to be from the high of 36.08 (see left-most high reached on the week of 2/4/2011 on Weekly Sugar #11 chart below) that puts the 50% Retracement at 25.39.  That would be our next target if prices continue past 23.28.

One strategy would be to simply exercise our option and go long a contract and put our stop-loss near our strike price of 16.75 (above to lock in some profits, or at or below 16.75 to  limit our risk capital to a comfortable amount.  We’ll have to see how prices move over the next couple months to see which strategy is most viable.

Daily Sugar #11 - May 2014

Weekly Sugar #11


Going Long Silver on Breakout Above Sideways Channel

As we discussed in our post: Silver Moving in Sideways Channel, we have been waiting for a break above or below the sideways channel that Silver Futures have been stuck in for the past 3 months.  See the Daily and Intraday Silver Charts below.

Today, prices spiked up to 21.32, clearing breaking though the top side of the channel shown in the Daily Silver Chart below.  Therefore, we are going long Silver Futures with the purchase of a 21.40 Call Option for a premium of $2,705.00.  This option expires on 4/24/14.

We anticipate prices to move up to the same degree as they moved sideways.  Therefore, we are looking at an upside target of approximately 24.00.

Daily Silver - May 2014Intraday Silver Prices

Lost Profits – Coffee Approaches Retracement Level

When we initiated our March Coffee long position, we anticipated prices to go all the way to 148 (the 50% Retracement Level per our post here:  Entering Coffee Futures on a Multiyear Low and Repeating 1-2-3 Bottom Formation)

We sold our contract and exited the Coffee Futures market when prices spiked up to 125 back on 1/31/14 (see our post: Taking Profit in Coffee Futures)

Looking at the Daily Coffee Futures chart below, coffee futures prices are hovering around 145, very close to the 148 Retracement Level.  Had we held on longer, we would have gained an extra 20 points (x $375/pt) or an extra $7500 in profit.  Instead of earning $4518.75 in ROI profit (a 265% ROI) we would have netted $12,018.75 (that’s 705% ROI!)

So why didn’t we hold on?  Why did we sell at 125?

Daily Coffee 2-14-14 May 2014

Even though trades like this come along fairly often (due to the massive leverage the futures markets afford us), coffee prices can swing wildly and we wanted to lock-in the profit we already had ($4518.75 and 265% ROI profit are pretty darn good!)  Let’s face it:  We could have made a lot more than even $12018.75 had we stacked or pyramided contracts.  We also could have invested some of our profits in some hedging insurance by purchasing a Put option at a 125 strike price (it wouldn’t have been cheap since it would have been at or near the money at the time).

Another option would have been to purchase more than 1 contract or option when we initiated the trade, then sold off some as prices went up.

There is no shortage of ways to make money in Commodity Futures, but if you can make 30% ROI on your money on average, that is considered great compared to any/all other investment opportunities.  Just because you can make make triple and quadruple (and higher) digit gains with some trades doesn’t mean you will every time, or even that you have to.  Protect your capital and you can take advantage of future opportunities.

Of course, everyone has their own trading style and if you wanted to hold until all the way up to the 148 Retracement Level (or employ some of the other trading strategies mentioned above) that’s your choice.


Going Long Wheat Futures on Breakout

Today (February 12, 2014) Wheat Futures broke above the #2 point of 592.75 in the 1-2-3 Bottom Formation shown in the Daily Wheat chart below.  The #1 point is a multiyear low.  As of this writing, prices for the day have gone as high as 597.75 before coming back down to 589.25.

We are going long Wheat by buying a May 2014 Call option at a 605 strike price (3 strike prices out of the money) for $862.  This option expires on 4/25/204.  The 50% Retracement Level on the Daily Wheat chart is 635.38 and the 50% Retracement Level on the Weekly Wheat chart is 748.74 so this trade has plenty of upside profit potential.

Daily Wheat CBOT - March 2014Weekly Wheat CBOT

Shorting Live Cattle Futures

Live Cattle Futures have hit historic highs.  Yes, we know the fundamentals:  Cattle ranchers have been cutting their head counts in recent years due to dropping demand and now there is a shortage of live cattle, hence the spike in prices.  In fact, there hasn’t been this few heads of cattle since the 1950s!

Despite all that, we don’t trade on fundamentals and looking at the technicals in the Daily and Weekly Live Cattle Futures charts below, you can see how the current prices are unprecedented.  What goes up must come down, at least correcting to the 50% level.  Therefore, with the 1-2-3 Top Formation shown in the April 2014 Live Cattle chart below, we have shorted the Live Cattle Futures market when prices broke below the #2 point of 139.45.  We purchased a 138.0 April Put option for $600.00 which expires 4/4/2014.

On the Daily Live Cattle chart below, the 50% Retracement is 137.64, which is why we bought the 138.0 Put Option, in case we are limited on the downside by this retracement level.  HOWEVER, on the Weekly Live Cattle chart (below) the 50% Retracement is 133.26 which gives us great downside profit potential.

Daily Live Cattle - April 2014Weekly Live Cattle

Taking Profit in Coffee Futures

We were long March 2014 Coffee from 112.95 with a target of 148 (the 50% retracement level) – see our previous post “We Are Long Coffee as of 12/13 When Prices Broke Above 112.90” – and now March 2014 Coffee Futures have reached 125.  The current Cash Price is 132.64 so instead of trying to ride this all the way up to 148 we have sold our March 2014 Coffee Futures contract at 125 with a profit of $4518.75 (125 – 112.95 = 12.50 points x $375/point).

That’s 265% ROI on our initial $1705 margin invested!

Soybean Oil Futures Forms 1-2-3 Bottom

See our previous post – “New Multiyear Low in Soybean Oil – Watch for 1-2-3 Bottom” where we noted a new multiyear low was reached and we were waiting for a 1-2-3 bottom to form.

Looking at the Daily Soybean Oil Futures chart below, we have a potential 1-2-3 bottom and now we will wait for prices to break above the #2 point of 38.30 before initiating a trade to go long in Soybean Oil Futures.  On the Daily chart, a 50% Retracement is 41.54 and on the Weekly chart (see below) the 50% Retracement is 47.41, both giving us plenty of upside profit potential.  Stay tuned.

Daily Soybean Oil - March 2014Weekly Soybean Oil

Silver Moving in Sideways Channel

As can be seen in the Daily Silver Futures chart below, Silver has been moving sideways since early December.   The low end of this channel is 18.72 (on Dec. 31) and the high side is 20.48 (on Dec. 11).

We will go long when prices break above the high side and short silver if prices break below the low end (we anticipate prices to go up, not down, but we can trade it either way).  We will watch Silver Futures carefully to see how prices go to determine if we go long or short.  The longer this sideways channel goes, the more up or down it will go when prices do finally break thru the channel.  Stay tuned.

Daily Silver - March 2014

Going Long Gold on Breakout

Gold Futures made a new 12-month low back on 12/31/13 at $1181.40 and proceeded to form a 1-2-3 bottom over the next several days (see Daily Gold chart below).  This past Friday (1/10/14) Gold broke above the #2 point of 1247.7.  We bought an April 2014 Gold Call option at a strike price of 1265 for $2,930.00 (3 strike prices out of the money).   This option expires on March 21.

On the Daily Chart, the 50% Retracement is $1271.85, but on the Weekly Chart, the 50% Retracement is $1488.40.

Daily Gold - Feb 2014Weekly Gold

Natural Gas Breaks Through 50% Retracement to the Downside

We have been watching the new high in Natural Gas futures (see our post New 12-month High in Natural Gas Futures) and waited for a 1-2-3 top to form, which it did over the next several trading days.  See the Daily Natural Gas chart below.

When the 1-2-3 top formation completed, we put a Sell order to short March 2014 Natural Gas futures when prices broke below the #2 point of 4.18.  The 50% Retracement level (according to the Daily chart below) is at 4.01 which it surpassed yesterday, 1/9/14, when it closed at 3.977.  As of today, 1/10/14, prices have dipped even more to as low as 3.936 at the time of this post.   We look at the Weekly Natural Gas chart to anticipate a new 50% Retracement level to see how much more downside profit potential this trade has.  According to the Weekly Natural Gas chart below, the 50% Retracement level is 3.8395.

We bought a 405 Put option (~3 strike prices out of the money) when prices broke through the #2 point at 4.18 2 days ago (1/8/14) for $1250.00.   Today our 405 Put option is worth $2350.00 (at the time of this post).  Since prices went as low as 3.936 today before bouncing back up and there isn’t that much downside left in this trade, we decided to sell our 405 Put option and take the profit.

We profited $1100 on this trade shorting the Natural Gas futures market using a Put option in 2 days for a 188% profit.


Daily Natural Gas March 2014

Weekly Natural Gas 1-10-14