Coffee Market Back In Play For Option Writers

Includes: CAFE, JO
by: James Cordier

(Video Transcript)

June 1, 2018, Update

James Cordier

Good afternoon. This is James Cordier of with a market update for June 1st. Well, lo and behold, CNBC, Bloomberg TV, and Fox Business are, once again, talking about Greek bonds, Italian bonds, and Spanish debt. Once again, Europe is smack dab in the middle of the radar screen. It's so interesting that after practically 10 years of quantitative easing through the eurozone, their economies still are struggling to get their heads above water. Some nations still have negative interest rates. Here we are, looking at some of the German economic numbers, consumer confidence is falling dramatically, PMIs throughout all the nations in Europe are doing basically a swan dive at a time where you would think of 8 or 9 years of quantitative easing they would really be forging ahead. It doesn't seem to be the case.

That could be the reason we've had $80 crude oil and, of course, all of Europe needs to import energy from other nations. $80 oil, of course, is quite a tax on the consumer and, of course, industries as well. What is this doing? This is probably slowing the global economy both here in the United States as well as in Asia. It's just the first glimpses of it. It doesn't appear to be a slowdown here yet, though we do seem to be in a bit of a stall speed in the U.S. and some of the foreign nations. Of course, interest rates in the United States are ticking up, approximately every 3 months. Whether they raise rates this year 3 or 4 times doesn't really matter that much. It is underpinning the U.S. dollar and what that's doing for us is providing a very stable commodities market. As clients, you all know we have many positions on where we're actually predicting stable market prices.

Identifying fairly value markets in gold, silver, crude oil, coffee, soybeans can be a great mainstay for option selling. Of course, as you know, we have $800-900 strangles around gold. Gold over the last 6 months has barely budged. The silver market so far this year has been lopped into a $1 an ounce trading range. We have approximately an $18 strangle around that market. We really do like the idea of a strong U.S. dollar throughout the rest of the year, and that's creating very stable commodity prices which, I think, is going to be very fruitful going into the 3rd and 4th quarter of this year.

One market that's finally coming around is the coffee market. We do have a trucker strike in Brazil and that is keeping some of the coffee off of the market. Of course, investors and speculators are racing in to buy coffee. We love the idea of selling coffee calls above $2 for later this year and early 2019 expiration. We think that's going to be a great idea and we expect coffee prices to be half of the strikes that we're selling right now. Our old friend coffee is becoming what I think is going to be a very good opportunity going forward. We'll just have to wait and see.

As always, it's a pleasure chatting with you and looking forward to doing so again in 2 weeks. Thank you.