Sugar Options Commentary 31st August 2010
Published: 08/31/2010, 11:08:00 PM
J&C Commodities
Sugar Options Commentary
31 August, 2010
Very inflated volume in the calls. Large scale volume in the first 50 minutes of trading and the shop was shut down for most of the remaining day. Then, a large 3-way in K was crossed.
- E Coast buy/sell 1000 K 20/25 call spreads vs the 1600p @ 17 vs K=1865
- JSG sd 2500 H 1800c @ 266vs 1940
- JSG bot 600 V 1950/2000 call spreads @ 23
- Coffee broker bot 1000 H 3200c @ 7, bot 1000 V 2300c @ 7
- JSG bot 500 V 1950/2000 call spreads @ 23
- ICAP bot 500 H 1550/1600 put spreads @ 11-12 vs 1950
- E Coast crossed 500 H/K +200c @ 36
- B&D bot 500 V/H +70c @ 12
Commentary
The attempted advance by the market today only to see weakness near the end of the session only reinforces our belief that the current dynamics are factoring in the recent production estimates for both Brazil and India. The thin overall trading volume all but ensured we would not visit 2050 while at the same time, the massive open interest that is still in the V 2000c acts like a magnetic beam and keeps us from having a significant pullback. Even though we still hear news of very firm cash levels trading in Brazil, we are approaching the V Index Roll (8 September) and the V/H spread will have some pressure to it as others try to jump in front of the volume that is impending to be moved.
In the options, we saw heavy call volume early on in the H 1800 vs futures. Later in the session, a very interesting trade saw 1000 3-ways in K get blocked with the resulting futures hedge.
Final thoughts, we can see on the horizon that ideas of continued dry weather in Brazil combined with the excessive moisture in India will start to play havoc with the H/K spreads. At the same time, other regions such as Indonesia and Australia have weather issues that are yet to be manifested. Therefore, the market does act as if it is on the precipice of moving higher but all we have right now is the uncertainty with a lack of confirmation. To us, attempts to sell volatility here by others are probably value buys in the longer term. We don't have the proverbial "rocket fuel" yet but if we start seeing a shift in perceptions, then being long the H/K or H/N should get rather interesting (in a good way). Perhaps buying H calls and selling N puts as a calendar fence is a good way to be long volatility as well as try to catch a future upside breakout.