Cocoa Futures and Options Market Trading

Learn the most effective strategies for buying and selling options on futures contracts. Also learn producer and consumer hedging strategies.

*The information contained within this webpage comes from sources believed to be reliable. No guarantees are being made to the content's accuracy or completeness.

The History of Cocoa and Cocoa Futures Trading

Cocoa is the common name for a powder derived from the fruit seeds of the cacao tree. Roughly 2/3 of cocoa bean production is used to make chocolate and 1/3 to make cocoa powder. Cocoa was originally combined with spices and served as a luxury drink in the Aztec empire. The cocoa was brought back to Spain and was called "the food of the gods". For nearly a century, chocolate (usually made from cocoa, sugar, cinnamon and vanilla) became an exclusive drink of the Spanish Royal Court, until it gradually achieved a wider popularity in cocoa houses of major European cities when it became less expensive.

ICE Cocoa Futures and Options Quick Facts

10 metric ton contract size
$1 move equals $10
Trades March, May, July, Sept., Dec.
Cocoa futures symbol (CC)

Here is a brochure from the ICE for cocoa futures and options.

ICE cocoa brochure

In 1925 the world's first cocoa bean future was started at the New York Cocoa Exchange. In 1986 the first cocoa options began trading. Cocoa future trading is now a very active future trading contract. Cocoa options on the cocoa futures contracts have enjoyed much higher volume and consequently much greater liquidity recently.

During the September 11 terrorist attacks the Coffee, Sugar and Cocoa Exchange (CSCE) was destroyed but within days the cocoa futures and cocoa options markets were once again trading. This is a testament to the strength and viability of the soft futures markets. The CSCE has since merged to become part of the New York Board of Trade (NYBOT) who merged with The Intercontinental Exchange (ICE).

Are you a cocoa hedger? If so, click here to learn more.

Cocoa Options on Futures Contracts Explained

A cocoa call option gives the purchaser the right but not the obligation to purchase the underlying futures contract for a specific time period and a specific price (strike price). Let's say that you wanted to purchase a July cocoa $2,000 call option and pay a premium of $1,200.

This means that you bought the right but not the obligation to buy 10 metric tons of July cocoa for $2,000 per ton. Of course, very few options are bought for the purpose of taking delivery but that is one potential outcome. Chances are that you either bought the cocoa option to hedge your price risk in the physical cocoa market (you may be a producer like a cocoa farmer or an end user like a chocolate candy company) or you are speculating that cocoa prices will go higher in an attempt to make a profit.

A cocoa put option gives the purchaser the right but not the obligation to sell the underlying futures contract for a specific time period and a specific price. Let's say that you wanted to buy a July cocoa $1,500 put option and pay a premium of $1,100.

This means that you have the right but not the obligation to sell 10 metric tons of July cocoa at $1,500 per ton.

What is the delta factor?

The delta factor of an option represents the estimated percentage of change an option will receive based on the movements in the underlying futures contract.

Let's assume the July cocoa $2,000 call option above has a 30% delta factor. This means that if the underlying futures contract were to rally by $1,000, then the call option would accrue by approximately $300 or 30% of $1,000 in the cocoa futures contract.

What is theta?

Options are wasting assets which means that they lose value as time passes. The theta of an option is the measure of time decay.

Let's assume that you bought a July cocoa $2,000 call option with 60 days left until expiration. Let's also assume that the cocoa futures prices have moved very little over the last month and are exactly the same price 30 days later. Your option will have lost 30 days worth of time and therefore will be worth less today that it was when it had 60 days left until expiration.

What is vega?

Vega is a measure of the implied volatility of an option contract as it relates to its underlying futures contract. For instance, if the underlying futures contract is extremely volatile then the implied volatility of the options of that futures contract will be affected.

In a high implied volatility environment option premiums tend to expand. Conversely, in a low implied volatility environment the option premiums tend to decrease.

*Contract information changes from time to time. Please click here to see the most recent contract specifications and click here for the most recent trading hours.

ICE Contract Specifications for Cocoa Future Contracts

Trading Unit

10 metric tons (22,046 pounds)

Trading Hours

4:00 a.m. - 2 p.m. (NY time) (Verify with exchange)

Price Quotation

Dollars per metric ton

Delivery Months

March, May, July, September, December

Futures Ticker Symbol

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To visit other soft commodities go to coffee futures ,cotton futures, orange juice futures and sugar futures.

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