That Coffee Trade? Collect Your Profits!

| April 9, 2014 | 0 Comments

coffee-collageThat didn’t take long…

Coffee surged to multi-week highs at $2 a pound in yesterday’s trading session.  That’s a 17% gain from the $1.70 lows set on April 2nd.

As you may remember, I pointed a low-risk/high reward trade setup in the coffee market on March 31st.  In case you missed that article, you can find it here

At the time, coffee was pulling back to the $1.70 area thanks to profit taking.  After all, the commodity had put together an extraordinary run in February and investors were ready to take profits.

But upon further review, CFTC Commitment of Traders data revealed there was still plenty of investors long the coffee market.  In fact, for the week of March 28th, managed money longs outweighed shorts 7 to 1.

What’s more, the pullback created a perfect low-risk reference point to establish a long position.  That’s why I suggested you buy either the iPath Pure Beta Coffee (CAFE) or the iPath DJ-UBS Coffee (JO). 

Take a look at the returns for JO and CAFE since March 31st

coffee

As you can see, the commodity ETFs surged to a 10% gain in yesterday’s trading session as coffee surged back above $2 a pound.

What should you do now?

You have two options…

First, you could just set a stop loss order in JO or CAFE at break-even.  Doing so makes this a risk free trade.  In other words, if coffee drops back to $1.70 in coming days, you’ll be stopped out of the trade with no losses.

However, given the fact that this trade has already returned 2 times our original risk, it would be wise to take some money off the table.

As a result, I believe the best option is to sell a portion of your position and set a breakeven stop.  This way you’ll be allowed to profit while leaving a portion of your position open for further gains- all with no further risk of loss.

No matter what you decide, you’re sitting pretty in coffee right now…

The Brazilian weather worries are far from over.  And even though the country has received some rain, coffee growers still don’t know the extent of the drought damage.

If you made this trade, I’d like to hear from you.  Send me an email at [email protected] or leave a reply in the comments section below.

Congratulations on a great trade!

Until Next Time,

Justin Bennett

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Category: Coffee

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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