Steady profit with option selling

RESULT: Selling put options on cocoa futures
– Let’s harvest some beans

Today, I want to update you about the previously sold put options on cocoa futures. There have been some good reasons why to sell put options right in this market as introduced in the original market idea. Check it out before reading this article, if you want to learn something how to select suitable markets for selling options.

Let’s go straight to the point. On October, 28th, I wrote that I saw an opportunity to sell put options on the March cocoa futures contract “CC” expiring on 5 January 2018 at the strike price 1850 while collecting a premium of $130 per option.

Cocoa futures – brief analysis of the result

This trade was closed on November, 10th when the put options were bought back for $30 per option. This resulted in a profit of $94.08 per sold option, after fees.

Cocoa futures daily chart
The first blue vertical line shows when the put options were sold. The second vertical line shows when the options were bought back after they lost 80% of their value.

As you can see in the chart above, the price shot up in the last days. When we sold the put options with the strike price at 1850, we were basically saying that the price of the futures will not reach the strike price of the options. Since the price of cocoa futures went up pretty quickly, the option also lost its value fast. That is what we want. Hence, the trade was closed just after 2 weeks even though there are 55 days left until the option expires. Moreover, the implied volatility decreased which resulted in the decreased price of that option as well. That was additional factor working for us. And do not forget the best friend of any option seller: “time”.

The cocoa futures seem to have built a bottomCocoa futures daily chart and are currently beginning an uptrend. This is better visible at a weekly chart. (By the way, I do not use charts with smaller units than daily.)

I still believe that there will be good opportunities in the cocoa market. However, as already written, the implied volatility is currently low, which is naturally not ideal for option sellers. That is why, I will further follow this market, but not open directly a new position.

There will be other new market ideas on Premium-Flow

That’s it. We currently do not have any ongoing trades, presented as market ideas. Do not worry. I will come up with something, maybe from a different field. I suppose not that many people follow the soft futures markets, as for example cocoa or sugar. That is why, I am thinking of introducing a trade involving stock options. I also plan to write some articles focusing on long-term investing which is also a very interesting field to be active in. There are plenty of approaches so make sure you check it out.



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