Cotton futures were again called to open higher this morning on the back of more fund short covering. It was with a little surprise then, that the market initially opened 10-20 lower, much to the chagrin of local traders.
As it turns out one of the European merchants was quite a large buyer of bearish May put spreads on the opening and re-opening which pressured values. March moved towards support at the 50 day moving average, bouncing off 53.20 and moving back to unchanged.
A lot of this support stemmed from the largest US merchant, who was a massive bullish option player. The group sold around 2,600 51 strike puts at around 60 points, whilst they also bought some 1,500 March 56 calls for 80-90 points.
This bullish influence soon pushed prices to yesterday's high at 53.70 and then through it to post a new high at 54.10. There appeared to be less commercial selling today, but there was quite a heavy offer above 54 cents.
With the A index now comprising of 2 US quotes ( the MOT and the CA/AZ ) it is becoming more sensitive to NYF movements, noted today with the daily AWP rising to 44.45, having been as low as 42.11 yesterday ( official ).
The effect of this sharp rise in the AWP will be that US commercial selling will be ratcheted up to levels that represent at least an 11-11.5c spread to March.
In the meantime though the official AWP at 43.09 will see the most structured commercial selling to rest from 54.10-54.60. The session eventually closed with active month gains of 15-18 points. Estimated volume today was decent at 15,756 lots.
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