Cocoa options show increased bets on fall in price

* May be directional bets or insurance against positions

* Market in lead-up to West Africa's main crop

LONDON, July 23 (Reuters) - Activity on the NYSE Liffe London cocoa options market showed an increased number of bets on a fall in cocoa prices, after a bull run that pushed the futures market to a 32-year high last week.

Liffe's September <0#LCCU0+> and December <0#LCCZ0+> cocoa option contracts on Friday had a particularly large number of puts -- giving the owners the right to sell a futures contract at a set price.

"There's clearly a more substantial amount of puts open than there has been for over a year in the forthcoming two London contract expiries," a London-based options specialist said.

"One may want to conclude there's a greater risk perceived to the downside than to the upside. However, some market participants elect to use the options as an outright way to make directional bets on the market, and others would simply use them as insurance against existing outright futures positions," he added. Market participants pay for options to gain the right, but not the obligation, to buy or sell an asset at a particular price.

The open interest on Liffe (NYX.N) December put options was about 37,000 lots on Friday, while open interest on call options, which give the right to buy at a set price, was about 24,000 lots.

"Big positions went on two to three weeks ago," said a London-based dealer.

The London cocoa market is unusual because it has higher open interest in options than in futures, pointing to greater risks in cocoa compared to many other agricultural markets.

Put options can also be used by players holding large amounts of physical commodities as a way of guaranteeing a minimum price is received for those goods if prices fall.

Last week Liffe reported the largest delivery of cocoa against a futures contract in 14 years, when 240,100 tonnes were delivered against July, representing nearly all of the available graded cocoa in Europe.

UK newspapers reported that London-based commodity firm Armajaro took delivery.

European trade and industry sources told Reuters on Monday that Switzerland's Barry Callebaut (BARN.S), the world's largest chocolate maker, was the end user of about 100,000 tonnes of cocoa that will be delivered on the July contract. [ID:nLDE66I1SI]

In the lead-up to the main crop harvest in West Africa, the world's largest cocoa-producing region, which begins in September/October, there is typically a shortage of fresh cocoa available.

A long-term decline in production in Ivory Coast, the world's number one producer where war and a lack of investment have taken a toll on the industry, has helped to underpin cocoa's strong performance over the past year.

Dealers warned that prices could collapse in the event of a good supply from West Africa's main crop.

(Reporting by Sarah McFarlane and Nigel Hunt; Editing by Jane Baird)