Thursday, February 16, 2006

Close Escape!

Well after topping $.18/pound, the Oct '06 sugar contract started dipping a bit. Then last Thursday, I was watching CNBC and they popped the one year chart of sugar up on the screen. I thought "Oh God, if they're showing the chart of sugar up on CNBC, it is getting close to selling time." After two down days in a row, I closed out all of the sugar positons at the following prices on 2/13:

(1) Oct '06: 16.72 +$8,982.40
(1) Mar '07: 16.55 +$8,388.80
(2) Oct '07: 15.50 -$1,400.00

While I was a bit disappointed not to get out "on top", I had to remind myself that you never buy at the bottom and you never sell at the top. Just be glad that there is money to be made in the middle.

Today sugar was down nearly 1 cent/pound early on, but later rallied and right now is only down about .3 cents/pound. I have no idea whether it's going higher or lower from here, I just know that the trend no longer appears to be up. Also, the margin of safety is gone, as the price of sugar is no longer "low". Finally it's getting way too much mainstream press for my liking. So we'll keep an eye on sugar in case it absolutely tanks, but for the time being I think it's time to move on.

One last thought on why this month might be especially volatile for sugar - March is "delivery month", as sugar contracts are delivered in Mar, May, Jul, Sep. So speculators can bid up sugar as much as they want, but somebody actually has to take delivery of the contract! So is this a big game of chicken with speculators hanging on until the very last minute, then dumping their contracts, stay tuned!

A day after closing out the sugar contract, I closed out the coffee position on St. Valentine's Day. Now coffee prices are still low and I believe they are going much higher eventually, but the trend had turned down and I had (stupidly) bought another coffee contract just in time to catch the down trend. So with images of Indiana Jones running away from the boulder in the beginning of Raiders of the Lost Ark (dunnnn dun dun duhhhhhh, dun dun duhhhhhhhhhhhhhh), I closed out the coffee positions and managed to dodge 300 poisonous darts at the same time!

So here's the updated portfolio. You might notice a MAJOR haircut due to the trend turning on coffee and sugar. At it's peak, the total value was about $35,000 - now it's back down to around the $20,000. Which is still higher than at the start of 2006. So while the loss from the top is enough to make one throw up, I gotta remember that we started all of this with $2,000 last spring, so a %1,000 return in under 12 months is pretty awesome!

Here are the current positions. One thing to note, I placed a stop order around 62.00 on cotton since this trend appears to have turned down a bit. I probably could have saved some of the haircut if I had kept some tighter stops in there when the trend turned down, so I'm trying to "not get fooled again".

And coffee will see it's day again, but once it appears to reach a bottom. I still love the fundamentals and will talk about them once the price has stopped dropping through the floor.

Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss Market Value
01/18/06 Long 1 SEP 07 Corn 257 261 $200.00
01/27/06 Long 1 DEC 07 Cotton 63.00 62.85 ($75.00)
01/24/06 Long 1 JUL 07 Soybeans 623 637 1/2 $725.00

Total Equity: $20,144

4 comments:

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Inflation, as measured by WPI, fell to a steep -2.06%, marking the fourth straight month of deflating prices.
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