In yesterday’s post, we said that coffee could be setting up for a huge move somewhere later this year. The chart is not bullish yet, but the setup is evolving towards a bullish scenario.
The key question is how exactly to play a rising coffee market? There are not many investment instruments. The number of active ETF’s is scarce. Futures is one potential way to play the coffee market, but the very high level of leverage is really a very high risk way to do so.
There are, however, several low-risk methods to trade options. The key is to choose the right method, as options carry also a significant risk. In this video (webinar), Rob Tovell explains a low risk option trading method to play a rising coffee market.
Technically, there are a couple observations to make on coffee’s weekly price chart. First, coffee seems to be setting a double bottom, which is bullish. On the other hand, the price of coffee is trading below its 12 and 52 week average, which is bearish. Suppose a bullish scenario plays out, then the most likely target is the 2014/2015 support, which will become resistance, at 1.60.
Suppose the bullish scenario plays out, which options trading method to choose? A directional trade would be to buy call options, which is NEVER recommended. A second option, which carries considerably less risk, is to buy a vertical spread. A third option, also low risk, is to sell a put spread.
In this video, Rob Tovell, having dedicated many years of his career trading options, recommends to sell a put spread. How does that exactly work? Watch the video, it contains a terrific amount of best practice insights. Watch as of 4:45.