Coffee versus equity as a two-sided debit-spread drill

A two-sided classroom drill

TradersWeek editorial. Teach this archive write-up as a two-sided classroom drill. Convert one coffee-versus-equity regime story into a pair of vertical debit spreads so the continuation case, the fade case, and the choice to stand aside share the same defined-risk arithmetic.

TradersWeek editorial. An option-spread is a paired long and short option used as one procedure so entry, exit, cost, and abstention can be checked together. A vertical-debit-spread is a same-expiry spread that buys the closer option and sells a farther same-type option, paying a net debit to cap both loss and gain. Intermarket analysis reads one market against another, here cash coffee versus an equity, to place a single trade idea in a regime or input-cost context.

The coffee-versus-equity story

The write-up described cash coffee as up 65% year to date after a bounce from 2014 lows and about a 50% retracement of the 2011 high.

It framed Starbucks as having advanced while coffee fell, including a rise from the low $30s to above $60 in 2012, an April to August 2013 pullback as coffee retraced off its lows, and a later move from near $40 in April 2013 to about $80.

The bullish call vertical

The bullish case study specified an April 2015 80/85 call vertical last marked at 1.55, described as a $155 plus commissions debit for the right to buy 100 shares at $80 and the obligation to sell at $85.

On that call vertical, the write-up stated the capped reward as five points minus the 1.55 debit, or 3.45.

TradersWeek editorial. That structure is a bull-call-spread: a call vertical that pays a debit for upside participation up to the short strike.

The opposing put vertical

The opposing case was specified as a put vertical that buys the higher-strike put and sells a lower-strike put to reduce the net debit while limiting upside risk if the stock declines.

TradersWeek editorial. That structure is a put-vertical-spread: a put vertical that pays a debit for downside participation while the short lower-strike put reduces cost and caps the gain. Both sides of the drill then use the same vertical-debit-spread arithmetic: a net debit, a capped loss, and a capped gain.

Projections and the choice to stand aside

Chart notes set a bullish projection above 82 and a bearish projection below 72, and treated a coffee break to fresh yearly highs as a possible cue that the stock could roll over.

TradersWeek editorial. Those notes keep continuation, fade, and abstention inside one option-spread procedure. If neither vertical is taken, standing aside is a checked outcome, not a leftover.

Two time horizons

The write-up contrasted short-horizon rule-based execution with longer-horizon ideas that can start from news, and noted that Northern Hemisphere summer is South America's coffee-growing winter as context for a possible move into the following spring.

TradersWeek editorial. Keep the seasonal note as background for the intermarket story. The entry, exit, and abstention check still belongs to the defined-risk spreads, not to the news that may have started the longer-horizon idea.