Coffee Futures and Options
*The information contained within this webpage comes from sources believed to be
reliable. No guarantees are being made to the content's accuracy or
The History of Coffee and Coffee Futures Arabica Trading
Coffee's beginnings are lost somewhere in mankind's ancient
history, but it is
believed to have originated in the Ethiopia around 3 A.D., where ground beans
were used to season food by the various inhabitants
of that area. It is also believed that about 1300 A.D., the
Southern Arabians first roasted and brewed coffee
for use as a beverage. Today, coffee is one of the
world's most popular drinks and is among the world's
most important internationally traded commodities,
with a number of economies largely dependent in its
ICE Coffee Futures and Options Quick Facts
37,500 pound contract size
each one cent move equals $375
trades Mar., May, July, Sep., Dec.
Coffee futures symbol (KC)
Here is a brochure from the ICE for coffee C futures and
ICE coffee brochure
The Coffee, Sugar and Cocoa Exchange (CSCE) was the
premier world market for the trading of coffee
sugar futures and cocoa futures and options, and since 1993,
an innovator in the trading of futures and options
in dairy products. The CSCE was located in the world
trade center before it was destroyed in the
September 11 terror attacks. Symbolic of the
strength and stability of the futures markets,
coffee, cocoa and sugar futures contracts were
actively trading within one week of the destruction
of the exchange. Since then the CSCE has since merged to become part of the New York
Board of Trade (NYBOT) and merged again with the Intercontinental Exchange (ICE).
Are you a
coffee hedger? If so,
click here to learn more.
Coffee Options on Futures Contracts Explained
A coffee 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 May coffee $1.50 call option
and pay a premium of $1,200.
This means that you bought the right but not the obligation to buy
37,500 pounds of May coffee for $1.50 per pound. 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 coffee
option to hedge your price risk in the physical coffee market (you
may be a coffee producer or coffee end user) or maybe you are
speculating that coffee prices will go higher in an attempt to make
A coffee put option gives the purchaser the right
but not the obligation to sell the underlying coffee futures contract
for a specific time period and a specific price. Let's say that you
wanted to buy a May coffee $1.30 put option and pay a premium of
This means that you have the right but not the obligation to sell
37,500 pounds of May coffee at $1.30 per pound.
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 May coffee 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 May coffee 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 May coffee $1.50 call option with 60
days left until expiration. Let's also assume that the coffee
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 future 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 Coffee Futures Contract Specifications
37,500 lbs. (approximately 250 bags)
3:30 A.M. to 2:00 P.M. New York Time (verify with exchange)
Cents per pound
March, May, July, September, December
5/100 cent/pound, equivalent to $18.75 per contract.
Daily Price Limits (from previous day's settlement
price): 6.00 cents with variable limits effective under certain
conditions. No price limits on two nearby months.
Coffee Options Contract
Confers to buyer the right to buy (in the case of a
call) or sell (in the case of a put) one coffee "C"
One coffee "C" futures contract
9:15 A.M. New York Time until the completion of the
closing period which shall commence at 12:30 P.M. (verify with exchange)
Cents per pound
"Regular Options": March, May, July, September,
December; "Serial Options": January, February,
April, June, August, October, November
1/100 cent/pound, equivalent to $3.75 per contract.
Daily Price Limits:
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