We Just Shorted Cocoa Futures – 3rd Time is the Charm

Cocoa futures hit a new multiyear high back on July 3rd, and we’ve been waiting on a 123 top formation to short Cocoa futures (see previous post: Cocoa Hits Multiyear High).   We just bought a Sept. 2014 Cocoa Put option with a 300 strike price for $290.  As you can see in Daily Cocoa futures chart below, prices closed just below the #2 point of 3085 yesterday, and today they continued edging lower closing out the day at 3055.

The 50% Retracement on the Daily chart (see below) is at 300.5,  so our 300 strike price put option will be at the money if prices drop another 50 points.  HOWEVER, the 50% Retracement on the Weekly Cocoa futures chart (see below) is 2598, meaning this trade for such small risk ($290) could net us huge gains!

This will be the 3rd time we’ve shorted Cocoa futures with an option, but the previous 2 times our options expired worthless and out of the money.   Prices have to drop eventually, so 3rd time is the charm!

Daily Cocoa futures chart - Sept 2014 Weekly Cocoa futures chart

Cocoa Hits Multiyear High

Cocoa futures hit a new multiyear high today. The July contract month hit 3138. Over the next few days we will wait to see if a 123 Top Formation gels and then we’ll short the Cocoa market. The 50% Retracement Level on the Sept. Daily Cocoa chart (see below) is 2990, and on the Weekly Cocoa chart (see below) is 2592. There is huge downside profit potential in this trade, especially since the last 2 times we shorted Cocoa prices kept rising. Third time’s the charm!


Daily Cocoa chart - Sept 2014Weekly Cocoa chart

As Cocoa Prices Plummet, Our Put Option Briefly In The Money

Cocoa futures continue their slide (see the Intraday Cocoa chart below), which is getting steeper, going as low as 2849 before bouncing all the way back up to 2896. At the time of this post, July Cocoa futures sit around 2890.

The brief dip below our Put option’s strike price of 2850 was exciting, but even more exciting is the price collapse below the previous support level of 2880see the Daily Cocoa chart below.  We’re hopeful Cocoa continues this slide and we can reach our initial target at the 50% Retracement level of 2801.50 (see previous post: Shorting July Cocoa on 1-2-3 Top Formation).


Intraday Cocoa - July 2014Daily Cocoa - July 2014

Cocoa Prices Crash Through Support

Cocoa future prices are currently at 2910 at the time of this post (see the Intraday Cocoa chart below). Remember, we are short Cocoa with our 2850 Put option and were waiting for prices to break thru the #2 point of 2922. This has now occurred (see our previous post: Cocoa Futures Breaking Thru Support?).

Our 2850 Put option isn’t ‘in the money’ yet, but we still have time and it looks like prices are heading lower. Stay tuned!

Intraday Cocoa chart - July 2014

Cocoa Futures Breaking Thru Support?

Today, Cocoa Futures prices reached a new recent low of 2943 (at the time of this post).  We are short Cocoa Futures with a Put option (at a 2850 strike price) we purchased back on March 25 (see our post:  Shorting July Cocoa on 1-2-3 Top Formation).

When we shorted cocoa futures with our put option, we didn’t wait to see if the 1-2-3 top formation was going to ‘firm up’.  Looking at the Daily Cocoa chart below, you can see that today’s low so far of 2943 is pretty close to the #2 point of 2922 in the VERY WIDE 1-2-3 top formation that eventually formed over the past several weeks.  Wide 1-2-3 top and bottom formations usually indicate a strong and prolonged move in the market.  We expect if/when prices break below the #2 point of 2922 our 2850 strike price put option should be in the money soon after.  Stay tuned!

Daily Cocoa chart  - July 2014

Shorting July Cocoa on 1-2-3 Top Formation

Cocoa futures hit a multiyear high of 3047 on March 17th.  Prices haven’t been this high since 2011.   But they were higher in 2011, going as high as 3826 in March 2011 (see the Monthly Cocoa chart below).

Over the past few trading days, Cocoa Futures formed a 1-2-3 Top Formation (see Daily Cocoa chart below) and then broke below the #2 point of 2987 last Thursday.  We held off shorting this market to see if the vague-looking 1-2-3 Top Formation was going to develop into one that looked a little more sure of itself.  It didn’t.  Prices have been drifting lower over the past few trading days (see Daily July Cocoa chart below) and today, March 25, July Cocoa Futures are sitting at about 2948 (at the time of this post).  We decided to short this market now rather than wait and possibly miss our chance to maximize profits.

We bought a July Cocoa Put option with a strike price of 2850 (2 strike prices out of the money) for $740.00.  This Put option expires on 6/4/14.  On the Daily July Cocoa chart, you can see the 50% Retracement Level is 2801.50 so if prices don’t drop much further than that, we still can make a decent profit on this trade.  HOWEVER, on the Weekly Cocoa chart (see below) the 50% Retracement Level is 2542.50, giving us the potential for some nice profit if prices drop past the 2800 level.

Daily Cocoa - July 2014Weekly Cocoa FuturesMonthly Cocoa Futures

We Are Short Cocoa When Prices Broke Below 2728 Today

Today, December 30, March 2014 Cocoa prices broke below the #2 point of 2728 and we are now short Cocoa Futures.  Our target is the 50% Retracement level of 2495.  We purchased a 260 Put Option (2600) at $350, which is 2 strike prices out of the money.  This option expires on Feb. 7th.

Shorting Cocoa on a 1-2-3 Top Formation

Cocoa has formed a typical tight 1-2-3 top and we will be shorting cocoa futures when the price breaks below the #2 point at 2728 it hit on 12/4.  The 50% retracement is at ~2495, leaving us plenty of downside profit potential.

If you look at the Monthly Cocoa chart, cocoa prices haven’t been this high since mid-2011.

Daily Cocoa - March 2014Weekly Cocoa

Monthly Cocoa