Sugar Options Commentary 1st September 2010
Published: 09/01/2010, 8:47:00 PM
J&C Commodities
Sugar Options Commentary
1 September, 2010
1:45 NY Volume 17258c/4920p
One of the major longs in V 2000c decided to take profit on them today and sold 6000 of them. The result was to cap any rally due to locals hedging and make vols cheaper.
- JP Morgan sold 6000 V 2000c from 80-92
- block of 1000 November 1950 str @ 303
- FC Stone bot 1000 H 1300p @ 8
- J&H block 250 K 20/25 call spreads @ 93 vs K=1865
- ICAP block 1000 H/K +110c @ 65
- East Coast buy 1000 H/K +110c @ 65 from Cargill
Commentary
The rally in the US Stock Market and Industrial Commodities as well as a sharply lower US$ Index came on the news of a faster pace of manufacturing in China. It is very interesting to note that on the same day the market received bullish news concerning China, UK Manufacturing Numbers were on the opposite end of the spectrum. The net result of the bullish statistics was a 4 month high for copper as well as sharply higher crude oil. We saw a significant rally in the US Stock Market, which could be based on the fact many of the S&P 500 companies have large sales exposure to Asia. However, it should also be noted the US Stock Market had its worst August performance in 9 years so perhaps this move today was a correction. In the case of sugar, the market is already a bit jittery on expectations of weather issues affecting supply flows into Q1 2011 so it didn't take much coercion to get the party started.
The highlight of the options today was the selling of 6000 Oct 2000c. It appears to be profit taking and the large in-the-money delta the locals had to hedge when they bot these calls sufficiently threw a wet blanket on any close above 2050. Otherwise, decent activity in buying H/K +110 calls.
It was good to see some "Rocket Fuel" in our market today but still not totally convinced the short term can go well beyond 2000. The Open Interest in the 2000c is just too large a factor and the Index Fund Roll starts next week so probably some pressure on V/H as a result. If you believe China will import 2.5 mmt and India/Brazil will have supply side issues, then we really like to be long H calls and short N puts as a calendar fence. Perhaps we can be accused of being too cheerleading for China but we think it is not a coincidence that every time their economy shows a positive report, commodities rally. Don't underestimate the fact that the commodity story will follow China more than what happens in the US Economy.