We Just Shorted Cocoa Futures – 3rd Time is the Charm

Cocoa futures hit a new multiyear high back on July 3rd, and we’ve been waiting on a 123 top formation to short Cocoa futures (see previous post: Cocoa Hits Multiyear High).   We just bought a Sept. 2014 Cocoa Put option with a 300 strike price for $290.  As you can see in Daily Cocoa futures chart below, prices closed just below the #2 point of 3085 yesterday, and today they continued edging lower closing out the day at 3055.

The 50% Retracement on the Daily chart (see below) is at 300.5,  so our 300 strike price put option will be at the money if prices drop another 50 points.  HOWEVER, the 50% Retracement on the Weekly Cocoa futures chart (see below) is 2598, meaning this trade for such small risk ($290) could net us huge gains!

This will be the 3rd time we’ve shorted Cocoa futures with an option, but the previous 2 times our options expired worthless and out of the money.   Prices have to drop eventually, so 3rd time is the charm!

Daily Cocoa futures chart - Sept 2014 Weekly Cocoa futures chart

Cocoa Prices Crash Through Support

Cocoa future prices are currently at 2910 at the time of this post (see the Intraday Cocoa chart below). Remember, we are short Cocoa with our 2850 Put option and were waiting for prices to break thru the #2 point of 2922. This has now occurred (see our previous post: Cocoa Futures Breaking Thru Support?).

Our 2850 Put option isn’t ‘in the money’ yet, but we still have time and it looks like prices are heading lower. Stay tuned!

Intraday Cocoa chart - July 2014

Cocoa Futures Breaking Thru Support?

Today, Cocoa Futures prices reached a new recent low of 2943 (at the time of this post).  We are short Cocoa Futures with a Put option (at a 2850 strike price) we purchased back on March 25 (see our post:  Shorting July Cocoa on 1-2-3 Top Formation).

When we shorted cocoa futures with our put option, we didn’t wait to see if the 1-2-3 top formation was going to ‘firm up’.  Looking at the Daily Cocoa chart below, you can see that today’s low so far of 2943 is pretty close to the #2 point of 2922 in the VERY WIDE 1-2-3 top formation that eventually formed over the past several weeks.  Wide 1-2-3 top and bottom formations usually indicate a strong and prolonged move in the market.  We expect if/when prices break below the #2 point of 2922 our 2850 strike price put option should be in the money soon after.  Stay tuned!

Daily Cocoa chart  - July 2014