Consider buying a put option on July cotton (CTN26) futures.
See on the daily bar chart for July cotton futures that prices have just hit a multi-month high. However, there are now longer-term technical resistance layers that lie just above present prices, and which have turned back price rallies over the past couple years. Also, the relative strength index (RSI) shows the cotton market is into overbought territory (above 70.0) and is at least due for a downside correction. It’s my bias that the recent rally in the cotton market is about finished.
Fundamentally, U.S. cotton exports have been underwhelming in recent months, as major importer China has shied away from buying the U.S. fiber. Also, consumer apparel trends in recent years have moved away from cotton and more toward synthetics.
Consider buying a put option on July cotton, with a downside price objectived of 66.00 cents, or below. The option expires on June 12.
IMPORTANT NOTE: I am not a futures broker and do not manage any trading accounts other than my own personal account. It is my goal to point out to you potential trading opportunities. However, it is up to you to: (1) decide when and if you want to initiate any trades and (2) determine the size of any trades you may initiate. Any trades I discuss are hypothetical in nature.
Here is what the Commodity Futures Trading Commission (CFTC) has said about futures trading (and I agree 100%):
Trading commodity futures and options is not for everyone. IT IS A VOLATILE, COMPLEX AND RISKY BUSINESS. Before you invest any money in futures or options contracts, you should consider your financial experience, goals and financial resources, and know how much you can afford to lose above and beyond your initial payment to a broker. You should understand commodity futures and options contracts and your obligations in entering into those contracts. You should understand your exposure to risk and other aspects of trading by thoroughly reviewing the risk disclosure documents your broker is required to give you.
On the date of publication, Jim Wyckoff did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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