Taking Profits in Sugar

Our May Sugar Call option expires on 4/15/14 which gives us a couple more weeks.  Our initial target on this trade was the 50% Retracement Level of 17.30, but when prices went as high as 18.47 before reversing, we moved our target to the 50% Retracement Level on the Weekly Sugar chart of 25.39 – see our previous post:  Going Long Sugar After Our Last Option Expired

Today, our May Call option is worth $1251.20 as prices spiked up to 17.89 (at the time of this post).  We paid $828.80 back on 2/19/14, so we sold this May Sugar Call option for $1251.20 and pocketed the $422.40 profit.

That’s a 51% ROI in a little over 1 month.  

We still believe prices can go as high as the 50% Retracement Level of 25.39.  We chose to sell now instead of holding this option until it expires (or exercising it for a futures contract) because sugar prices have been a little to volatile for our tastes lately.  Your trading style may be more risk-tolerant in which case you would hold onto this option to see what happens over the next couple weeks.  We won’t be surprised if prices make new highs and we miss out on those additional profits, but in this case we prefer to protect our capital for future trades.



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


We Are Long Sugar When Prices Broke Above 16.48 Today

We purchased a March 2014 Sugar #11 Call Option at a strike price of 16.75 (cost of $268.80).  This Call option is 2 strike prices out of the money.  We could have gone for a slightly cheaper Call option that is 3 strike prices out of the money (a 17.00 Call option would have cost $224.00) but the 16.75 Call option was a much better deal.  This option expires on 2/18.  Every penny in Sugar is $1120.00.  Our target is the 50% Retracement level of $18.01.

Sugar Forms 1-2-3 Bottom Formation Off Multiyear Low

Sugar Futures hit a multiyear low (see Weekly Sugar chart below) of 15.86 on 12/18/2013 and quickly formed a 1-2-3 bottom formation over the next several days of trading as can be seen on the Daily Sugar #11 (March 2014) chart below.

We are going to go long Sugar  when prices break above the #2 point of 16.48 which can happen as soon as tomorrow.  The 50% Retracement level is 18.01 based on the Daily chart below and could go to 19.93 based on the Weekly chart, giving us plenty of upside profit potential.

Daily Sugar #11 - March 2014Weekly Sugar #11