Coffee Read Online Free PDF Page B

at 110 would be silly, and
therefore worthless, right?”
    “Well,
not worthless, because in markets you never know. There is always a
little chance that prices will go crazy, but in my example you’re
close. You wouldn’t pay much, like maybe a buck.”
    “Sure.
I’ll play. I pay a buck, and that gives me the option over
the next 3 months to buy coffee at 110 even though now coffee sells
at 100. If it happens to go to 120, I use my option to buy it at
110, and immediately sell it, and make 10 bucks.”
    “Now,
all of a sudden, the price of coffee jumps to $103 in one hour,
courtesy of our friends at Global Growers. What do you think would
happen to the value of your option?”
    “I
think you’re going to tell me.”
    “It
would go up. If coffee can go to 103 in 1 hour, then it might more
easily get to 110 in 3 months, right?”
    Knut
started seeing the finale. “Yea, I see.”
    “Even
though the price of coffee is still way below 110 at 103, the chance that coffee could hit 110 goes up. Therefore, the value of the
option to buy at 110 goes up too. Make sense?”
    Knut
let it sink in for a minute. “Yes it does.”
    “It
might go to, say two bucks, which means the value doubled, right?”
    “But
if you held onto it through the end of the 3 months, it would still
be worthless, because the price never went over 110.”
    “Right,
that’s why you have to immediately sell it when the price is
up.”
    Etty
sat back to enjoy Knut’s thoughtful expression, then added,
“Think what this means for tomorrow’s Coffee Options.
If you buy a million dollars of them at 9am, you could conceivably
have two million by lunch.”
    Warren
cut in. “Thanks for the lesson, Etty. What about some facts.
Let me guess, you have option price history on that report in your
lap.”
    “Correct.
These reports verify it. Coffee options behaved just like my
example right after the Tuesday price spikes.“ Looking down
at the printout, “Here’s one last year that went from
$1.20 to $2.42, here’s one that went from $0.90 to $1.75.
Both doubled or nearly doubled.”
    Now
Etty returned to face Warren. “Listen to me guys. I have
stumbled on to a market manipulation scheme of monumental scale.
Thanks to your interesting addition about the agriculture report,
here’s how I think it works.”
    She
guided her thick black hair away from her face with both hands.
“Clorice Coffee Company and Global Growers must have worked
this out as partners. Clorice’s seller goes to the trading
pit with lots of coffee to sell, the day before the ag report. The
Global guy suddenly starts buying, pushing the price higher and
higher over a short burst. Others join in, there’s a feeding
frenzy. Everyone thinks Global knows something from the report,
like maybe that world coffee supplies are about to crater. Clorice
makes out like a bandit, selling his goods at well above the market
price. He’s happy. Meanwhile, Global owns a huge pile of
options on coffee. The value of the options jump. They sell at a
huge percentage profit, like doubling their investment. Net of the
loss they took on buying the actual coffee beans at above market
rates, they still make out big time. They’re happy. The
price starts to drop again, and eventually returns to where it
started. Win - Win.”
    Warren
reached toward Etty. “Let me see the printouts.”
    Etty
stood and leaned over his desk to show the option price jumps on the
same days as the price spikes, then sat back, feeling victorious,
while he studied them.
    Before
Warren spoke again, she continued. “Warren. Even if these
guys are scum of the earth, deserving to die a slow death, there is
nothing illegal about making an investment based on a hunch about a
change in value. People do it every day, every minute. You, more
than any of us, must know that.”
    Knut
again interrupted, still back on the scheme. “You know, the
more I think about it, this is an incredibly smart game. The guy
who is creating the ruse,