My Experiences Trading Sugar Commodity Futures Contracts and Options

Sugar buying and selling is romantic! Here’s some precious hints and kinks taken from precise buying and selling experiences.

Sugar is a good marketplace for starting commodity merchants. Sugar futures contracts require a small margin and hardly ever make excessive strikes. Currently, an account margin of $1200 will management about $13,000 price of sugar. (112,000 lbs at 12 cents per pound) A one cent transfer in sugar equates to $1120.

Brazil is now power unbiased from its use of ethanol within the type of alcohol. Ethanol is derived from sugar. This has introduced an excellent enhance within the variety of speculators and industrial hedgers buying and selling in sugar futures and choices. The volatility and liquidity generated is a optimistic by-product.

Sugar trades for less than three hours a day, from 9am-12pm. What an excellent life to be an knowledgeable sugar dealer! It’s a 15 hour work week.

Sugar has made a number of excessive strikes during the last thirty-five years. The final huge transfer to 18 cents a pound was final 12 months. In the early 1980’s sugar hit 44 cents a pound. In the early 1970’s sugar hit 66 cents!

On the opposite aspect, sugar as soon as bought as little as 2.5 cents a pound. The entire 112,000 pound contract was price solely $2800! You might have taken supply and warehoused it for a number of years and bought it for 15 cents a pound or $16,800. (Or simply stored rolling the contracts ahead with no supply) That’s not a foul revenue in the event you believed sugar was not going to be free. Multiply this occasions ten contracts and you’re looking at over $160,000 on a $30,000 funding. There actually is alternative if one is prepared to tackle the chance.

During regular or quiet markets, choices on sugar futures are normally low-cost and you should buy lots of time. Strategies are plentiful for spreads, straddles, and strangles. Sugar makes a lot of long-term patterns and formations. Wave evaluation and swing buying and selling works nicely for sugar when it is trending.

Some merchants search for the opportunity of “pyramiding” contracts when sugar is energetic. This is a dangerous method used when the market is in an prolonged pattern. A dealer tries to maintain including futures positions utilizing earlier earnings. Don’t ever overlook this can be a double edge sword. If you add to positions, ensure that to regulate catastrophic stops in order that your losses should not uncontrolled if the market reverses. If the market stops you out and strikes within the different course, do not be afraid to get again in if the pattern remains to be intact. Sugar tendencies can final quite a bit longer then most count on.

Look to exit positions after huge strikes throughout the morning opening or close to the shut. Sugar futures are likely to reverse after very massive strikes by gapping open the next day. Try to not hold huge earnings over the weekend considering Monday morning could have a giant observe by. You could wish to loosen up on Friday proper earlier than the shut.

If you are feeling nervous about holding onto huge earnings, my greatest recommendation and rule of thumb is to maintain one-half of your place and promote one-half. This manner you may by no means be greater than one-half mistaken, and one-half proper. This is a type of “scaling out”, which is a favourite strategy of mine. Besides, after a climatic transfer the choice costs are normally very inflated. The choice premiums may very well decline on a flat opening Monday as a result of the earlier panic response wasn’t justified.

Hurricane seasons are a time when the sugar market will get lots of consideration. There is all the time the likelihood that the crop in among the sugar rising areas might get blown away and broken past restoration. This might occur, however is uncommon. Many merchants purchase choices to cowl this susceptible time frame, trying to revenue. Though over the lengthy haul, extra exact timing is required to cowl the choice premium bills.

An ideal technique for sugar is shopping for a name and promoting one other name at a better strike worth to cowl among the premium bills. (unfold) Also, you could possibly purchase a futures contract and purchase an inexpensive put as safety. And lastly, promote choices in a buying and selling vary after a giant transfer. This is a method used to seize inflated premiums for worthwhile erosion.

Sugar has long run “kick-in-the-pants” cycles that produce huge strikes each eleven years or so. Keep an eye fixed out for the subsequent one.

Here’s how I search for alternatives within the sugar markets: First I generate a TimeLine forecast that reveals a powerful transfer up or down in sugar. The TimeLine relies on time cycles and different preprogrammed patterns. I then decide if the transfer is predicted to be uneven, trending, and for a way lengthy. This helps us deal with attainable directional futures/choice positions or writing choices in a variety, and even writing choices with the pattern.

Next I exploit automated choice software program to seek for the perfect of 1600 methods based mostly on the anticipated market transfer. I evaluate these choice to choice combos in opposition to futures to choices combos. At some level I’ll discover a compromise between threat, revenue and simplicity in a single or two methods. In hindsight there’s all the time a greatest technique we might have used. Keep that is thoughts when narrowing down the alternatives. When completed, we wish to have one or two potential trades to work with. We name the chosen few, “high probability, low risk trades.”

Remember there’s extra to planning a commerce than simply arising with a forecast. The market could transfer as predicted however we will nonetheless lose by selecting the mistaken buying and selling autos. Pick the appropriate autos and methods that may enable us to remain out there with out extreme worry, however nonetheless carrying calculated threat.

We NEED to tackle calculated threat or the market is not going to pay us for our providers. In addition, the car has to maneuver far sufficient to make a revenue with out letting the expense of safety eat us up. Excessive safety (threat avoidance) can come within the type of choice premiums, too close-in cease loss orders – and overdone, complicated unfold methods. Matching a forecast to a method is a crucial talent to achieve commodity buying and selling.

Good Trading!

There is substantial threat of loss buying and selling futures and choices and will not be appropriate for every type of buyers. Only threat capital ought to be used.

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Source by Thomas Cathey

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