While the stock market has done well over the past few years, not all assets have been in bull markets. Many of the 'soft' markets have been just that. But those days may soon be behind us as one by one, the sector looks to be turning the corner. While it is still very early, there are some signs of life within the international sugar market. Considering the substantial potential gain of a move back to the OTE short sweet spot of this bear market, I am more than happy to entertain the idea of long dated call option purchases and even a bit of bottom hunting within the futures pits. 17.29 seems to stand out and should be an interesting level to keep an eye on going forward.
After some thought, it occurred to me that this is a classic CRI's OnlyDoubles Trade Idea. Indeed, one can go and buy a 1 year call option on #11 Sugar and literally 'lock in' a position on this commodity for relatively little money.
For OnlyDoubles blog purposes, I like the October, 2014 $20 call options currently at 46 points (at $11.40/ point that equates to $524.40). The October, 2014 Sugar futures contract is current $17.84 so a 10% move on a futures contract over the next year isn't too out of the question. Indeed, should the market go back to our '1st stop' target (38.2% fib at $22.50) this option will have an intrinsic value of 250 points (or $2850). Considering too, this is a one year option, there is lots of time for this idea to play out....
One should always follow CRI's 2nd rule of investing - that being never risk more than 5% of your stake on any one single trading idea. So with that in mind, your trade size should calculate itself. Ideally I would like to put $1000 to work here (so you should know how big of an account I need to consider this trade idea) and buy 2 contracts, I will consider the entire $1000 risk capital (which means I can afford to lose it) and will have an open order to sell half the position at double our purchase price (open order to sell 1 contract at 92 points or better).....hence the blog's name....OnlyDoubles
That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
therationalinvestor.ca
Of course, all legal disclaimers are relevant. Consult your financial adviser as to the appropriateness of any strategies mentioned here. And none of you are ever going to consider a trade unless it is with money you can afford to lose - right!
