The sugar industry has a long history of government subsidies and tariffs being used to protect local sugar producers. Only one you will need for spreads! Since the colonial days, global sugar trade has been influenced by constant government intervention, either via production subsidies to farmers, import restrictions, imposition of tariffs or trade blocs. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. There is no better tool to analyze spreads out there. Buying was once again concentrated in grains where funds continued to cut shorts in wheat while adding fresh longs in soybeans and corn. To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk.
A guide for investors looking to invest in sugar futures.
Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative Some stocks pay generous dividends every quarter.
You qualify for the dividend if you are holding on the shares before the ex-dividend date To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa The need for this type of standardized contract becomes evident when you consider that nearly every country grows its own sugar.
The most common sugar contract is the Sugar Contract size for raw sugar is , pounds. Futures contracts on sugar can be purchased by opening up a brokerage account with a broker that deals with futures. You can also choose to buy an option on sugar futures. Like standard equity options, there are two benefits to buying these investments.
The first is that you are limiting your loss, because you cannot lose more than what you paid for the option excluding brokerage costs. So, if you are wrong on the move of the price of sugar, your loss is only what you paid for the option. The second is that options are usually far less expensive than buying the futures contract outright.
Futures can be a very risky proposition for novice or inexperienced futures traders, and options allow some level of protection. The futures market is not the only way for a trader to profit from a move in sugar.
You can also purchase stocks. When it comes to sugar, there are two names to keep in mind: Besides individual stocks and commodities, there are also exchange-traded funds ETFs and exchange-traded notes ETNs that will allow you to add sugar to your portfolio.
This ETN allows you to add exposure to sugar to your portfolio without having to purchase futures contracts yourself. The Bottom Line If you are interested in trading or investing in sugar you should do your homework.
Understanding the ins and outs of this market can be tricky. With constant government intervention, which can cause wild swings in the price of Sugar 11 contracts, it's a good idea for new investors and traders to start with either stocks or with options on the futures contract. The exchange where sugar is traded is there to serve two purposes: Emerging economies in Asia and South America are the fastest growing consumers of sugar , so continued strength in these economies is positive for prices, while an emerging market bust could depress prices.
Brazil produces and exports such a large percentage of the annual sugar crop that fluctuations in its currency can have a major impact on sugar prices. When the real is strong, Brazilian farmers are more likely to sell in the local market, where sugar is used to make ethanol, and receive reals for their sugar.
A weak real means greater supply on global markets and lower prices. The sugar industry has a long history of government subsidies and tariffs being used to protect local sugar producers. Subsidies and tariffs distort the market by creating artificially high supply and depressing prices.
If the largest sugar-producing countries stopped subsidizing growers, then production could fall and prices could rise. Successful sugar crop production requires frost-free conditions and ample rain during the growing season. Since sugar production is heavily concentrated in a small handful of countries, poor weather conditions in one or more of these countries can have a very disruptive effect on supply. Sugar consumption has been linked to diabetes, obesity, heart disease, tooth decay and other ailments.
Governments are under pressure to address high obesity rates, and this could lead to taxes and restrictions on high-sugar items. Health concerns could lead to a decline in sugar consumption and a fall in prices. Sugar can be crushed and used as an ingredient to make ethanol. Since ethanol competes with gasoline as a fuel source, its demand often moves inversely with oil and gasoline prices. A fall in oil prices could depress sugar demand for ethanol, while higher oil prices could increase demand.
Sugar, like other commodities, is quoted in US dollars. Sellers of sugar receive fewer dollars for their product when the US currency is strong and more dollars when the currency is weak. A strong US dollar depresses sugar prices, while a weak US dollar lifts them. Investors purchase soft commodities such as sugar for many reasons, but the following are most common: Most sugar production occurs in a few countries, and weather patterns play an important role in determining supply.
Sugar prices can be very volatile. Investors looking to speculate on short-term bottlenecks in supply might see sugar as an attractive investment. Most commodity investments, including sugar, are priced in US dollars and, therefore, are a way to bet on a weak US dollar. The US economy has relied disproportionately on consumer and government borrowing and spending over the past few decades. To incentivize borrowing, the Fed has kept interest rates low for a long period of time.
Growing debts and deficits in the United States could put pressure on the dollar and boost sugar and other commodity prices.
Asian and other emerging economies are growing wealthier. As consumers in these countries accumulate more purchasing power, their appetite for sweet foods may grow as well. Investing in sugar might be a way to capitalize on these global trends. Commodities such as sugar have historically had low correlations with stocks, bonds and other financial assets.
Investing in sugar provides a way to diversify a portfolio and smooth out investment returns. Sugar is a volatile commodity, so investing in it could produce big gains or losses.
Commodities such as sugar can be a way to mitigate risk in an investment portfolio by providing asset diversification. Investing in sugar is also a way to profit from 3 long-term trends: Experts see sugar and other soft commodities offering attractive investment opportunities in the coming years.
Aug 31, · Trading sugar Broadly speaking, futures can be traded either outright or in the form of spreads. When trading outright futures, the reward is high, but so is the risk. Free Seasonal Spread Trading Strategies With High Probability of Winning. Explore new way for commodity trading. Seasonality in combination with futures spreads, can give us a solid edge and base for building profitable trading strategies. - Sugar. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. Commodities: Sugar. By Jean notice day of the corresponding trading month.