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.