Q:
I have noticed that dec cocoa is trading much higher than distant months and was wondering your take on this..Usually this indicates a bull market..Is there some other reason for this that you know? thank you ..James
A:
Hello James,
You must understand that:
A. there is only 47 contracts open interest in the Dec 2008 and only 1 contract traded today. The commercials and producers are probably the only people left in that contract. I will say that the price there is the price most reflective of what the current value or price at this time is.
B. There is only about 115,000 contracts total in all months, with the March contract having 60,000+ of total open interest. This is basically what I would call a thin, illiquid market, but tradeable if you are experienced. The options are difficult to trade because they are not reasonable in the quotes the market makers give. I would only trade this if there was a reason to, and not recommend to the average trader. There are so many thick markets to trade, with tight bids and offers, even in the options. If you have a good reason to trade this, I would go into details about how to trade a market like this if you were on my books.
C.If you look at the prices of all contract months, they are within $.50 of each other from the March 2009 through Sept.2010, which only tells me that this is a flat market.
D. Yes, inverted and carry charge markets do have something to say about being bullish or bearish, especially in the AG markets, with new crop and old crop adding another thing to throw into the mix, but again, I am not going into details. I will admit that I spread probably billions of bushels of soybeans and corn in the days of trading in the pit, when I was a spreader, and know the game well. This year for my fund account, I spread many a contract of soybean futures this year, which helped me make 36% so far, after my payout for my fund account. This is not a 1 article explanation, but the meat of what I am saying is that I do not recommend trading markets with a total volume for all contracts with under 6000 total traded in 1 day.
Howard PS: Do you get my daily numbers or weekly TIF? I just had comments for this market in my weekly last weekend, I do comment at times when requested.
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