Here is a recap of the “Data Feed Trade” from February 2022.
The “Data Feed Trade” is a strategy to collect premium once a month to offset your monthly exchange data fees. You can read all of the details of this strategy in the following article: Paying Exchange Market Data Fees Every Month? DON’T!
The May 2022 Cocoa futures market was trading up against a potential resistance level near 2740. In addition, the twelve-month contract high was 2801 (10/05/21). On February 8th, the contract began what appeared to be a sell-off after failing to take out the recent highs. The momentum and turning point indicators were both in the over bought territory.
Trend and Momentum: Neutral and Over Bought
Market Strategy: Wrote a put option to collect premium above the current market price and twelve-month contract high.
Recommendation: Sell the April 2022 Cocoa 2900 call at 25 points or $250 (2/08/22). On a fill, placed a liquidation order on 3 points for a gain of $220.
Almost immediately after entering into the position the futures contract broke out above the recent highs, though stayed below the short strike price. The high made was 2838 (2/10/22). After that brief rally the downside momentum kicked into high gear and the futures contract sold-off for six straight trading sessions. On February 18, the order working to buy back the short option and cover the gamma risk (option expiration was March 4, 2022) was filled. Collected $220.
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May 2022 Cocoa Chart from Bar Chart:
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