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

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