Cocoa/Sugar Spread: Rollin’ Out

Buying Time

Currently, we are holding a short position in the May cocoa/sugar (x2) spread that was entered on September 30th from the equivalent of +$2,856 (premium cocoa) and a second ‘add-on’ position in the May cocoa/sugar (x2) spread that was entered at -$500 (premium sugar) on February 18th.

A third spread -which was another ‘add-on’ position – was entered in the July spread at -$4,000 (premium sugar) on April 19th.

We just passed the First Notice Day for May cocoa and the First Notice Day for May sugar is quickly approaching.  Therefore, we are going to roll the May spreads over to the July contracts.

Cocoa Sugar (x2) spread (nearest-futures) monthly

Cocoa Sugar (x2) spread (nearest-futures) monthly

Remember that previous rallies to +$4,500 (premium cocoa) or higher on the nearest-futures monthly chart were ultimately followed by major bear markets.  Each one crushed the cocoa/sugar (x2) spread down to -$20,000 (premium sugar) or lower.  Therefore, the spread still has a long, long way to go before we expect a bear market finale.  We’ll continue to add to the short position when the right setups materialize.

Trade Strategy:

On the hypothetical short May cocoa/sugar (x2) spread entered at the equivalent of +$2,856 (premium cocoa) and the ‘add-on’ position entered at -$500 (premium sugar), roll to the July contracts at the market-on-close on Friday, April 22nd. 

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