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FCOJ: Retracement Ahead

ByMatthew Bradbard
Published 07/31/2013, 12:08 PM
Updated 07/09/2023, 06:31 AM

On the one-month relative performance OJ has been the best performer with November futures higher by 12% as of this post. Being a contrarian, I’d like to fade this appreciation with clients. As one can see prices have been running into resistance for the last two weeks just above current trade as identified by the white solid line near $146.50. Since penetrating the 50-day MA (red line) on 7/16 futures have tread water not wandering more than a nickel above that pivot point. Stochastics are also overbought currently trading at 84/86. I am operating under the influence that futures turn south and am advising clients to use the Fibonacci levels on the chart below as exit level.
Frozen Concentrate OJ Futures
The Play
As opposed to trading a naked short futures, my preferred method to manage my exposure and provide a cushion is to sell a put option 1:1 against the futures. Today clients were shorting futures and selling $140 puts and collecting approximately $900 per. The play gives me 80 days from today. Presently these options have a 38% delta so we should realize ballpark 50% of the move on a trade lower. Conversely it gives us some wiggle room in case I am wrong on my futures leg. Collecting 6 cents protects us even if futures trade up to the 13’ highs made in late May/early June…which I do not expect unless we get a freeze scare here in Florida.
Short-Term Commodity Performance

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