Medium term
Trade view / 07 June 2016 at 10:03 GMT

#SaxoStrats: A Put Spread on overbought sugar

Head of Futures & Listed Options / Saxo Bank


After a strong rally on Sugar N11 Stochastics and RSI are now overbought and are giving us a selling signal.
We're buying the Aug16 18.50/17.50 Put Spread (expiry 15 July 2016 – 38 days) to play a 38.2% retracement of the last bullish wave 14.56 (Apr15)/19.33 (Jun06).

Sugar Daily Bar Chart
Source: Saxo Bank 

Management and risk description

Entry: Buy one Aug16 18.50/17.50 Put Spread at $0.44
=> Buy one Aug16 18.50 Put at $0.85
& Sell one Aug16 17.50 Put at $0.41 

Maximum profit at expiry is limited

Maximum profit at expiry achieved when underlying price =< short strike price
At expiry maximum profit  = long strike price minus short strike price minus premium paid
= $18.50 - $17.50 - $0.44
= $0.56

For one Put spread you pay a premium of $492.80 ($0.44 X $1,120) to receive a profit of $627.20 ($0.56 X $1,120) if the market closes at or below $17.50 at expiry.

Return on investment if the market closes at or below $17.50 at expiry

= profit/premium X 100
= $627.20/$492.80 X 100
= 127.27%

Maximum loss

Maximum loss is limited to premium paid
Maximum loss is $0.44 or $492.80 for one option

Break even point at expiry

Long strike - premium  paid
$18.50 - $0.44 = $18.06

Target: 17.50 or below

Time horizon: 38 days

5 year chart
Sugar 5 Years Chart
Source: Saxo Bank 

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more
07 June
Ole Hansen Ole Hansen
The wet weather conditions in Brazil have created a major log jam at the export terminals while hampering the crushing process. With the 10-day forecast now pointing towards drier conditions according to the MDA Weather Services these price supporting drivers could begin to fade. Hedge funds holding a record net long of 223,000 lots of futures and options have also made sugar a top candidate for a correction once bullish fundamentals begin to fade.
30 June
Dear Patrice, any views/analysis on this one?


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