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04-06-2011 11:26 AM
One analyst says the cotton market is busy in the options pit. Here's a full report of today's trade:
"The options market in cotton is still trading so so, despite there being 2,700 or so in the bid pool. Options have not gone double the limit, something different from what we have seen the past few months.
I had been asked if problems with Australia’s crop being too dry or too wet were behind this and after checking around, I can not confirm any such issues. I have been hearing reports, off and on, of dryness in Australia but excellent yields in irrigated so they could offset each other. Besides, the Brazilian crop is at least 200K bales above the USDA at 8.8 if not 400K so any losses in the former would be offset by the latter.
I suspect the techs played a hand in Tues’ rally as the May traded down to its 50-day moving average but then bounced. As a reminder, there is not much selling so it did not take much buying to push prices higher in old crop. Since other markets did not take the Chinese interest rate too hard cotton responded in kind. The interest rate increase by China was only π of a pt and the mkt expectation was for ∏ of a percent. I would look for the other π pt during their upcoming May day celebration Apr 30-May 2.
Over the past 5 weeks specs shorts per the ICE spec/hedge report are up 9,634 contracts vs longs only being off 1,326 so I suspect some of Tues and today’s rally is due to spec short covering. Since May 11 is still the largest open interest month, fair to assume the vast majority of selling has been in the front month and that is where the pools are located as July is freely trading. We may have also seen a lot more bear selling of the may/jul and some of that is being exited today or at least attempting to –
As for May options, per yesterday’s open interest and using today’s limit bid in the May, there are a total of 31K calls of which 21,077 are in the money today. From the 195-208 strikes there are 3,363 calls that quickly went from being out of the money this past week to in the money tues/wed so we may also be seeing some attempts to get out of short calls. OI changes after today if not tomorrow should answer the question if this is more new longs or just short covering or some of both accounting for the limit bid.
Chinese values did improve some today but not by all that much. In fact the May contract is 12-14 cents above the key contracts at the ZCE and CNCE and nearly even with the Jul so the 1500-lb gorilla is in no way responsible. After being sideways for a month, we got some new action in the May contract but I suspect it may not last beyond the next day or two."
04-06-2011 03:38 PM
$3.40 range cash in 011 though IS realistic.
Mike, we're gonna have alot of "cash heat" in the deal for exports last half of the year.
Chi town will start to notice cotton then perhaps ( at least they'll notice what they missed out on. LOL )