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The market remained thin during the COT period with a range of 11.05c and a net change of -1.70c. Spreads however, dominated the volume. The H OI dropped by 11,260 lots while the total increased by 538 lots as the HK weakened, indicating that many longs appear satisfied with their positions. However, as we study the report, we see once again Index selling via Swap Dealers. Managed Money sold in both markets as RC funds continued their several-week liquidation campaign.
For the present, the market is facing the continuation of the roll and the H option expiration. Each striking price represents a challenge, both up and down. In addition, let's consider the overwhelming call position, compared to puts, and how many of these calls +may be unhedged. The total option spread position may be a factor as well as many of the long calls may be in the money on one side and out of the money on the sell side. We often see corrections immediately before or after expiration.
In spite of the bearish looking COT and the bearish possibilities surrounding option expiration, the market behavior remains on the steady side. Although 245.00 remains impenetrable for now, weakness continues to be an opportunity. In addition, fundamentals remain on the friendly side. Production estimates are around 60m bags median consensus and warehouse stocks continue to decline. Shipping problems are not going away and spreads, except for HK, remain steady. On Friday, the KN +1.50 Call traded in volume but let's not forget that KN may very well duplicate HK. The spec factor remains in both spreads and outright.
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