Cocoa/Sugar Spread: Roll From the Summer Spreads

Keep Rollin’ Along

The IMC blog has been on a bear market campaign in the cocoa/sugar (x2) spread for several months.  We are currently holding a short position in the July cocoa/sugar (x2) spread that was entered on September 30th from the equivalent of +$2,565.60 (premium cocoa), a second ‘add-on’ position that was entered at -$790.60 (premium sugar) on February 18th, and a third ‘add-on’ position that was entered at -$4,000 (premium sugar) on April 19th.

The First Notice Day for the July sugar contract is this week and liquidity in cocoa is well established in the September contracts.  Therefore, we’re going to roll the position into the autumn contracts.

Cocoa Sugar (x2) spread (nearest-futures) weeklyA bounce into the declining 75-day Moving Average could offer another short sale opportunity.  The bounces in December, February, and April all ended after the spread clipped the 75-day MA, so we’ll look to take advantage of this pattern.  Also, if/ when the cocoa/sugar (x2) spread reaches our minimum downside target of to -$20,000 (premium sugar) we will tighten the exit parameters on the position.

Trade Strategy:

On the hypothetical short July cocoa/sugar (x2) spreads entered at the equivalent of +$2,565.60 (premium cocoa), -$790.60 (premium sugar), and -$4,000 (premium sugar), roll to the September cocoa and October sugar contracts at the market-on-close on Tuesday, June 28th. 

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