Selling Coffee Option and Taking Profits

Today, Sept. Coffee futures touched as low as 174.8 (at the time of this post), and they had reached as low as 173.25 last Wed. 5/28.  We have been short Sept. Coffee futures from 180.0 with our Sept. Put option (1800 strike price) we bought for $4435 back on 5/9 (see previous post:   Short Coffee Today After Drop Below Support).  As shown in the Daily Coffee chart below, prices are very close to the 50% Retracement level of 170.4, now for the second time since last Wed.   Yes, prices could continue to drop and even surpass the 50% Retracement level.   However, today we sold our Put option for $6,341.

That gives us $1906 profit and 43% ROI in LESS THAN 1 MONTH!

Daily Coffee futures chart - Sept 2014

Short Coffee Today After Drop Below Support

We made a lot of money back in January when we were long coffee futures.  Recently coffee futures made a new multiyear high.  We had been watching the Coffee futures market (see our previous post:  Coffee Forms 123 Top – Time to Short?) and TODAY prices broke thru the support of the #2 point at 196.5 on the 123 top formation so we are now short Coffee futures.  We bought a Sept. 2014 Put option with a 180.0 strike price for $4435 which expires on 8/8/14.

We could have purchased a much cheaper July Put option (a 180.0 strike price would have cost us ~$1875) but July Put options expire 6/13/14, giving us only about 1 month of time.  We therefore chose the Sept Put option and paid the extra premium for that additional time value.

For the September coffee futures contract, the 50% Retracement Level is 170.4, giving us plenty of downside potential.

Daily Coffee chart - Sept 2014

Coffee Forms 123 Top – Time to Short?

As you can see in the Daily Coffee chart below, Coffee Futures have completed a 123 top formation and we will wait for prices to break below the #2 point of 194.4 before we short the market.

The 50% Retracement Level from the last major move on the daily chart is 168.25.  That gives us plenty of down-side potential to profit on this trade.  Stay tuned!

Daily Coffee Futures = July 2014Monthly Coffee

Coffee Futures Makes New Multiyear High

Looking at the July 2014 Daily Coffee Futures chart below, you can see a new high was reached a couple days ago on 4/23/14.  Prices haven’t been this high since early 2012 (see Monthly Coffee chart below).

We wil look for a 1-2-3 top formation over the next several days and then short the Coffee Futures market.

Daily Coffee July 2014Monthly Coffee

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.


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!

We Are Long Coffee as of 12/13 When Prices Broke Above 112.90

A couple days ago on 12/11, we posted about Entering Coffee Futures on a Multiyear Low and Repeating 1-2-3 Bottom Formation and put a Buy order in at 112.95.  Current Margin on Coffee is $1705 (with a $1550 Maintenance Margin).  Since a Coffee Call Option that is 3 strike prices out of the money is in the $1200-$1400 range and only gives us a couple months of time, we opted to go for a Futures Contract with the $1705 Margin instead.  We initially placed our Stop Loss at the most recent #3 point (support level) of 105.65 it hit on 12/5.

Today (12/13) as can be seen on the Intraday March 2014 Coffee chart below, prices broke to the upside and triggered our Buy order and prices have continued up from there and stand at about 115 at the time of this post.   Our target is the 50% Retracement level of 148.

Intraday Coffee on 12-13-13 - March 2014

Entering Coffee Futures on a Multiyear Low and Repeating 1-2-3 Bottom Formation


Coffee is trending up, as can be seen in the daily March 2014 Coffee Futures Chart below.  A 1-2-3 bottom formed in early November, with new #2 and #3 points forming late November and early this month (December).

There’s lots of upside potential with the 50% retracement level near 148 (as can be seen on the Weekly Chart below).  Prices already broke above the original #2 point formed on 11/11 at 109.85, and had we been watching this market back then we would have went long when prices broke above 109.85.   Now there’s a new opportunity to enter the Coffee Futures market when prices break above the latest #2 point at 112.9 formed on 12/4.

We are going to put a buy order in to purchase 1 March 2014 Coffee Futures contract at 112.95 and long with the target of 148.  Current opening margin for Coffee Futures contracts is $1705 with a maintenance margin of $1550.  Keep an eye on Coffee in the next few days.

Alternatively, we could purchase an out-of-the-money Call Option with a strike price of 115.0 (1150) for $937.50 (250 x $3.75/tick).  That gives us ~2 months before it expires.

Daily Coffee - March 2014


Weekly Coffee Monthly Coffee