Update

Just a quick update as I really need to get to bed...

Cotton:

Cotton still staying around the 102 mark. Sentiment has really changed. The steam for the rally has temporarily run out, due to a combination of factors:

-India announced crops are a lot bigger than they thought.

-India stopped flip-flopping on whether or not they would hoard all their sugar longer to make sure they had enough for themselves. Now they're all like, "don't worry guys, we'll let you have sugar starting Nov.1.".

-End of quarter, so hedge funds who made a killing on the run up were booking their profits.

-Chinese traders are going on holiday Oct.1 - Oct.7, so trading is lightening up.

The price still seems strong though, as it can't seem to break below the 100 barrier. I had an order in to exit my 120 calls at my entry price (0.60), but they still traded around 0.79-0.94 today. I may try to exit again in the morning, unless the futures drop below 100, then I'll wait until next week.

Sugar:

Huge drop in sugar, so I've already made 30% of my premium on my 35 cent calls. I feel quite safe in this trade now. News is out that the crops are going to be huge next year (I thought that a year ago, when prices were high and everyone was planting tons of sugar, everyone knew this would happen... I guess the weather still had to be good though). The futures rarely lie -- the futures being in backwardation foretold that this would occur. Easy trade, easy money.

Natural gas:

Okay, I'm all ready to *buy* a natural gas option as I mentioned before. Thursday's storage report showed higher than expected storage numbers. Storage levels are not quite as high as last year, but still way above average, and demand is still low. Futures price has dropped to 3.85 and is equivalent to the spot price -- no premium built in. I should buy right now, but I'm going to wait until Monday and buy if the price is still this low or lower - I'm hoping the price will drop to 3.50, but I'm afraid a rally will start anytime. The odds are good that the big funds will all be buying as usual in October in preparation for heating season when demand picks up. It's a bit of a gamble trade for me as I'll only have about 3 weeks until expiry on the options. The 1 ATM options will cost about $2000, and the futures price will have to rise 0.20 in those 3 weeks for me to break even. Then it's about $1000 in gains for every 0.10 rise in price ($10,000 for a $1 rise). I'm pretty sure that near the end of October, NG will be above $4, so I think it's a good "gambling" trade.

Bunch o' Updates

11-month Portfolio Performance:

I'd like to say my option selling portfolio is up 90+%, because that's what it would be without my cotton trade. Instead, I'm back down to 80%. My cotton trade has caused a 6% portfolio loss, which appears as a 10% drop in my overall percentage gain. (simple example: If you turn $100 into $200 -- a 100% gain, and then you get a 5% loss on that $200, your account value is now $190. So your 100% gain now is only a 90% gain -- a 10% difference. This is because the 5% loss is on the current value, which was 2x the original value, and that equals a 10% drop based on the original value).

Cotton Update:

Yesterday, Dec cotton futures moved the daily limit of 4 cents, rising from 99.93 cents to 103.93. My 120 cent calls, which I sold for 0.60 cents each, ended up at 1.80, 3x the premium I paid, so I planned to exit my trade today.

Today, cotton continued it's rise, at one point going over 106 cents. The 120 calls traded at 2.00. I put in a buy order at 1.80 to exit. The price seemed to be stabilizing so I thought this was a fair price. Did I mention that you're flying blind when trading cotton options on OptionsXPress? They're pit-traded (not electronic), so price updates are slow and you don't see any bid/ask, so you don't know what the "going price" is. Oh, and the options only trade from like 5:15am to 10:15am PST, which makes for interesting trading :)

To attempt to get more visibility into prices by seeing what trades might have occurred that OptionsXpress isn't showing, I checked out the cotton info on TradingCharts (http://futures.tradingcharts.com/marketquotes/CT.html) which I believe shows option trades from the electronic exchange. About an hour before the options closing time, I noticed they showed a trade at 1.50 for the 120 calls. I wanted to modify my order from 1.80 to 1.50, not knowing if it was already too late. I did a "Cancel order", planning to put in the new trade after I was sure my existing order was cancelled. I wasn't sure if maybe my 1.80 order had already been filled and just not reported back to me due to the slow response on pit-traded contracts. But also due to this slow response, now my order was stuck in a "pending cancel" and stayed there until close. I'm just rambling now, but bah, it was frustrating.

Now I'm not sure what to do as the futures price has been dropping all evening, now back down to the 102 range. I still think I want to exit, since this is a dangerous trade. The news is non-stop bullish for cotton. My other option is to buy an equal number of, say, 125 calls to hedge myself -- limiting my losses if cotton goes above 120, but possibly being a cheaper alternative to outright exiting my current trade.

Sugar:

On Sep.24 I sold some Jan Sugar calls (74 days to expiry) at 35 cent strike price, while sugar futures rose to 25 cents. News for sugar is bullish (more bad weather, poor crops, etc.), and people are calling for 30 cent sugar, but they're also saying that it would be tough to break through that barrier. Furthermore, the Feb,2011 futures contract is a full cent lower than the Oct,2010 contract, and each further-out contract is lower than the previous. So just like last year, the futures tell the story that investors expect the price to drop, even if there is a temporary surge in prices. We'll have to wait and see if this trade will prove itself to be a mistake like my cotton one :)

Other News:

Gold has now surpassed $1300. This is great, as most of my other investments are gold-related -- and will continue to be. There's nothing else worthwhile to be invested in. Onward to $1600! ... oh, but not until my 1500 calls I'm selling have expired :)