Quick coffee trade idea

Pavel Hála | Trading ideas | 12. 2. 2013

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


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


It never get much over 3.0 in 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.


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