Pavel Hála

Quick coffee trade idea

Published February 12, 2013

One quick trade in NYBOT coffee (KC). Look at the spread KCK13-KCH13:

kck13-kch13_price

Shorting the spread (i.e. long KCH13, short KCK13) would be a good idea right now. Why? Look at the seasonality analysis of this spread:

kck13-kch13_seasonality

It never gets much over 3.0 in the last ten years so there is probably an arbitrage barrier. And it tends to decline towards parity before expiration. However, the front contract is expiring soon so keep in mind the risk! First notice day for KCH13 is Feb 20th so this is a very short-term trade. If the spread won’t move in few days, I’d get away. Don’t wait for FND to be liquidated – coffee can be brutal when you have an unhedged futures position.

Liquidity seems to be good for now. Front open interest is already declining but volume is still at safe levels around 20k. But keep an eye on it.

kck13-kch13_volume
Posted in Market analysis and tagged ,
Pavel Hála

Pavel is the founder and CEO of SpreadCharts.

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