Advanced Options Strategies Review along with Cocoa Futures Outlook

June 8th, 2018 Newsletter

Learn about Advanced futures Options Strategies along with Cocoa Futures daily and weekly chart

June 8th, 2018 - Issue #923

In This Issue

1. Options Trading 202: Selling Options and Options Spreads
2. Hot Market Report: Cocoa Futures
3. Economic Calendar

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1. Trading 202: Futures Options Writing

Have you ever wondered who sells the futures options that most people buy? These people are known as the option writers/sellers. Their sole objective is to collect the premium paid by the option buyer. Option writing can also be used for hedging purposes and reducing risk. An option writer has the exact opposite to gain as the option buyer. The writer has unlimited risk and a limited profit potential, which is the premium of the option minus commissions. When writing naked futures options your risk is unlimited, without the use of stops. This is why we recommend exiting positions once a market trades through an area you perceived as strong support or resistance. So why would anyone want to write an option? Here are a few reasons:

  1. Most futures options expire worthless and out of the money. Therefore, the option writer is collecting the premium the option buyer paid.
  2. There are three ways to win as an option writer. A market can go in the direction you thought, it can trade sideways and in a channel, or it can even go slowly against you but not through your strike price. The advantage is time decay.
  3. The writer believes the futures contract will not reach a certain strike price by the expiration date of the option. This is known as naked option selling.
  4. To hedge against a futures position. For example: someone who goes long cocoa at 850 can write a 900 strike price call option with about one month of time until option expiration. This allows you to collect the premium of the call option if cocoa settles below 900, based on option expiration. It also allows you to make a profit on the actual futures contract between 851 and 900. This strategy also lowers your margin on the trade and should cocoa continue lower to 800, you at least collect some premium on the option you wrote. Risk lies if cocoa continues to decline because you only collect a certain amount of premium and the futures contract has unlimited risk the lower it goes.
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    2. Hot Market Report: Cocoa Futures trying to stop recent sell off

    By Ilan Levy-Mayer

    Click on image below to enlarge

    cocoa futures; Cocoa belongs to the "softs family": Cocoa, Sugar, Cotton, Coffee, orange juice. All traded on the ICE exchange.
    Cocoa futures had a strong rally in the fist 4 months of the year as you can see on the weekly chart ( left side of image). The market then corrected fast from the rally and gave up over half the rally in matter of few weeks. The 61.8% retracement is right around 22.20 level. On the right side of the image you will see the DAILY chart of the cocoa market along with an oversoild ( blue diamond) indicator which resulted in a decent bounce. The big question at this point is: will the rally of the first four months of 2018 resume? or was that the top?
    Daily chart and weekly chart of Cocoa Futures for your review from this morning ( June 8th 2018). Cocoa is more suitable for "swing trading" and longer term trading rather than day trading, in my opinion. To access a free trial to the ALGOS shown in the chart visit and sign up for a free trial for 21 days with real-time data. <
    COCOA Futures Specs
    Hours: 03:45 AM to 12:30 PM Central Time
    Margins: $2090 initial, $825 Maint. ( as of the date of this newsletter)
    Point Value: full point = $1000 ( Example: 2776 to 2876 ). Min fluctuation is 1 = $10 ( Example: 2776 to 2777) Settlement: Physical Delivery
    Months: March, May, July, September, December. H,K,N,U,Z
    Weekly Options:NO, but you have the regular option on the underlying months.
    Many traders in the cocoa market are hedgers. Some produce and some consume....Like any other futures markets, speculators are the traders who try to benefit from price fluctuations and provide the necessary liquidity.
    Some of the basic fundamentals to keep in mind when you are considering trading the COCOA for this matter:
    1. Weather conditions
    2. Geopolitical tensions
    3. Climate shifts(which can affect conditions for healthy growth)
    4. Labor(cocoa relies heavily on cheap labor and new labor regulations can impact price)
    5. Value of the US$ and correlation to Cocoa prices

    Our brokers here at Cannon will be happy to chat about the cocoa market, other softs, other futures, options, futures spreads and much more! Feel free to contact us at any time.

    3. Economic Calendar

    Source: Moore Research Center, Inc.

    Date Reports Expiration & Notice Dates
    9:00 AM CDT - Wholesale Inventories(Apr)
    LT: Jul Sugar-16(ICE)
    Jun Canadian Dollar Options(CME)
    Jun Mx Peso Options(CME)
    Jun US Dollar Options(ICE)
    Jul Coffee Options(ICE)

    FN: Jul Sugar-16(ICE)
    7:30 AM CDT - Core CPI & CPI(May)
    11:00 AM CDT - Wasde Report & Crop Production
    1:00 PM CDT - Treasury Budget(May)
    3:30 PM CDT - API Energy Stocks

    6:00 AM CDT - MBA Mortgage Index
    7:30 AM CDT - Core PPI & PPI(May)
    9:30 AM CDT - EIA Petroleum Status Report
    1:00 PM CDT - FOMC Rate Decision
    2:00 PM CDT - Dairy Product Sales

    7:30 AM CDT - USDA Weekly Export Sales
    7:30 AM CDT - Initial Claims-Weekly
    7:30 AM CDT - Export(ex-ag) & Import(ex-oil) Prices(May)
    7:30 AM CDT - Retail Sales(May)
    7:30 AM CDT - Retail Sales Ex-Auto(May)
    9:00 AM CDT - Business Inventories
    9:30 AM CDT - EIA Natural Gas Report
    3:30 PM CDT - Money Supply
    LT: Jun Lean Hogs(CME)
    Jun S&P 500(CME)
    Jun Lean Hogs Options(CME)
    Jun S&P 500 Options(CME)
    7:30 AM CDT - Empire Manufacturing(Jun)
    8:15 AM CDT - Capacity Util & Industrial Prod(May)
    11:00 AM CDT - NOPA Crush
    3:00 PM CDT - Net Long-Term TIC Flows(Apr)
    LT: Jun E-Mini Dow(CME)
    Jun E-Mini S&P 500(CME)
    Jun E-Mini NASDAQ(CME)
    Jun Russell(CME)
    Jun E-Mini Dow Options(CME)
    Jun E-Mini S&P 500 Options(CME)
    Jun E-Mini NASDAQ Options(CME)
    Jun Russell Options(CME)
    Jul Cotton Options(NYM)
    Jul Crude Lt Options(NYM)
    Jul Orange Juice Options(ICE)
    Jul Sugar-11 Options(ICE)
    9:00 AM CDT - NAHB Housing Market Index(Jun)
    FN: Jul Cocoa(ICE)
    LT: Jun Currencies(CME)
    Jun Eurodollar(CME)
    Jun Mx Peso(CME)
    Jun US Dollar Index(ICE)
    Jun Eurodollar Options(CME)
    7:30 AM CDT - Building Permits & Housing Starts(May)
    2:00 PM CDT - Milk Production
    3:30 PM CDT - API Energy Stocks
    LT: Jun Canadian Dollar(CME)
    6:00 AM CDT - MBA Mortgage Index
    7:30 AM CDT - Current Account Balance(Q1)
    9:00 AM CDT - Existing Home Sales(May)
    9:30 AM CDT - EIA Petroleum Status Report
    2:00 PM CDT - Dairy Products Sales
    LT: Jun 10 Year Notes(CBT)
    Jun Bonds(CBT)
    Jul Crude Lt(NYM)
    Jul Platinum Options(NYM)
    Jul Palladium Options(NYM)
    7:30 AM CDT - USDA Weekly Export Sales
    7:30 AM CDT - Initial Claims-Weekly
    7:30 AM CDT - Philadelphia Fed(Jun)
    8:00 AM CDT - FHFA Housing Price Index(Apr)
    9:00 AM CDT - Leading Indicators(May)
    9:30 AM CDT - EIA Natural Gas Report
    3:30 PM CDT - Money Supply
    FN: Jul Coffee(ICE)
    FN=First Notice, OE=Option Expiration, LT=Last Trade

    Disclaimer: This calendar is compiled from sources believed to be reliable. Moore Research Center, Inc. assumes no responsibility for any errors or omissions. It is meant as an alert to events that may affect trading strategies and is not necessarily complete. The release dates for certain economic reports may have been rescheduled.

    * Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.

    ** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.

    *** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!

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