Wild Ride In Orange Juice

Yesterday, October 12, was a rather amazing day in the Orange Juice market. Orange Juice futures on the January contract shot up 26.85 cents to 192, a sixteen year high. With a one-cent move in Orange Juice equal to 150.00, the move yesterday on the January contract was worth $4027.50.

Prior to yesterday, from a technical point of view, it looked as if Orange Juice was going to continue the downward trend it had been in since August 28. I had written in a previous blog how I thought that Orange Juice was going to continue to the downside and I was looking for an initial downside target of 155.

Well, yesterday fundamental factors ruled the day. The department of Agriculture released a report showing the upcoming Orange Juice crop estimate to be 135 million boxes. This compares with 147.9 million boxes produced last year and clearly put the bulls back into control of this market.

One thing that today’s price action indicates is how potentially risky trading futures options contracts can be. A trader who was shorting the Orange Juice market yesterday could have easily found himself with his trading account wiped out and/or receiving a margin call.

This is why I prefer to trade options on futures contracts instead. The risk is at least limited to the price of the option and commissions. But, even with options, yesterday’s action was tough on those who had Orange Juice put options. For example, a January 07 Orange Juice 165 put option had a value at the close of trade on Wednesday, October 11, of $1155. At the close of trade on October 12, this option was valued at $165. Ouch!!

But, there could be a potential short term trade here. Orange Juice shot up so much yesterday, that it could be overbought, and may, in the near future have some correction to the downside. Also, yesterday’s move left a pretty big gap in the market. In trading, it’s always said that markets like to “close the gap” and Orange Juice would have to go down as low as 165.50 to close this gap. January 175 put options are relatively cheap now, closing today at $367.50. So a corrective move down to “close the gap” could yield a fairly decent profit.

For more info on trading basics and terminology, please visit my website at

www.mylearn2trade.com.