Commodities

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Daily High Grade Copper chart - July 2014

High Grade Copper Futures Form 1-2-3 Bottom

We’ve been watching High Grade Copper futures (see our previous post: New Multiyear Low in Copper Reached Yesterday) and now a wide 1-2-3 bottom has formed over the past several weeks. See the July Daily High Grade Copper chart below.

We will be going long High Grade Copper when prices break above the #2 point of 3.069 on the July chart.   The 50% Retracement Level on the daily chart is 3.13, which doesn’t give us a lot of upside potential, but we also have the 50% Retracement Level of 3.20 as shown on the Weekly High Grade Copper chart (see below).

Daily High Grade Copper chart - July 2014Weekly High Grade Copper

Daily Lean Hogs

Taking Profits in Lean Hogs

June Lean Hog prices dropped as low as 115.925 today before bouncing back up to ~117 at the time of this post.  We were short Lean Hogs with a 1200 strike price Put option we bought for $1040 (see our previous post: Shorting Lean Hog Futures with a Put Option).  Today we sold this option for $2400 and exited the market, since our target was the 50% Retracement Level of 115.50 and prices almost touched that level today.

We profited $1360 in 6 days with this trade – a 131% ROI!

Daily Lean Hogs

Shorting Lean Hog Futures with a Put Option

We have been watching Lean Hog Futures (see our previous post: Lean Hog Futures Form 1-2-3 Top Formation?) and today, prices dipped below the #2 point of 123.00, going as low as 121.90 (June contract) before bouncing back up to currently ~124.00.

Since we’ve been planning to short this market when the above event occurred, we bought a June Lean Hogs Put option with a strike price of 1200 (2 strike prices out of the money) for $1040.00.  This option expires on June 17th, 2014.  Our target is the 50% Retracement Level of 115.50 on the Daily chart (see previous post).

Daily Lean Hogs

Lean Hog Futures Form 1-2-3 Top Formation?

As you can see in the Daily Lean Hogs chart below, Lean Hog Futures have been forming a beautiful 1-2-3 Top over the past couple weeks and now we are just waiting for prices to fall below the #2 point of 123.00 before we short this market.  Our target will be the 50% Retracement Level on the Daily chart of 115.5, which gives us plenty of profit potential.  Stay tuned!

Daily Lean Hogs

 

Weekly Sugar #11

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.

 

 

Weekly Cocoa Futures

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

June Live Cattle

Live Cattle Spread Points to Lower Prices

We are short April Live Cattle with a 138.0 April Put option we purchased back on 2/5/14 for $600 which expires on 4/4/14.  That doesn’t give us much time left to be ‘in the money’ with this option (or to execute the option and be short April Live Cattle from 138.0).  See our previous post:  Shorting Live Cattle Futures for details.

Looking at the Daily April and June Live Cattle Futures charts below, you can see that yesterday’s prices closed at 144.425 for the April contract, but closed at 136.20 for the June contract.  This indicates  that prices will be lower in the near future.  If the April Futures contract prices catch up (or down, as the case may be) to the June Futures prices our 138.0 Put option will be in the money and we may yet make some money on this trade.  Only time will tell.  Stay tuned.

April Live CattleJune Live Cattle

Selling Our Wheat Call Option at 559% Profit

May Wheat Futures spiked yesterday to close at 715.75 and moved a litter higher this morning to 723.50 before coming down a little (at the time of this post).  We have been long May Wheat with a 605 Call Option we purchased back on February 12th for $862.00 and today we sold this Call option for $5681.25.   Even though our target was the 50% Retracement level (on the Weekly chart) of 748.74 (see our previous post:  Wheat Futures Prices Spiked Today), we decided to pocket the profits now instead of waiting.

We made a net profit on this trade of $4819.25.   That’s a 559% ROI in a little over 1 month!

Why We’re NOT Shorting Natural Gas Futures

Looking at the Daily Natural Gas June 2014 chart below, you can see that Natural Gas prices came off a spike in prices to 4.893 back on 2/24 (#1 point) and over the past couple weeks has formed a wide 1-2-3 top before breaking thru the #2 point of 4.416 today.  The 50% Retracement level on the Daily Natural Gas chart is 4.215.  The reason we are looking at the June Daily chart is because Margin on a Natural Gas Futures Contract is too high (~$9,800).  If we were to trade this market, we would buy an out-of-the-money Put option with at least a couple months of time left on it, which would cost a fraction of the Contract Margin.  Therefore, we look at the June chart which has plenty of open interest volume.

A 430 June Put option is currently ~$1100 at the time of this post and June 2014 Natural Gas Prices are currently trading around 4.42.  Today, prices have been as low as 4.385, which is below the #2 point on the Daily Natural Gas chart.

The problem with this trade is there isn’t much room between a 430 Put option and the 50% Retracement level of 4.215 (assuming prices drop that low).  To risk $1100 on an option (or less, if we sell it while it has value) for the possibility of making ~9 points ($900) is not the kind of opportunity we like to trade, so we’re going to pass.

If you look at the Weekly Natural Gas chart (see below) you’ll note the 50% Retracement level is 4.20 (not much different from the Daily Natural Gas chart 50% Retracement Level).  This means we don’t really have any expectations that prices could drop much past ~4.20 and therefore not much profit potential.  No thanks.

Daily Natural Gas 3-13-14 June 2014Weekly Natural Gas 3-13-14

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