New Positions that are being suggested for today: March 1
March Dow Jones- Yes we are still swing trading our original trade from Jan 17. Now we see the Dow trading at the top of the range and are reversing our long play into a play to the down side. We see the market trading at the top of its current range and expect the market to sell off.
Recommendation- Buy the March 110 put , sell the March 108 put and for the naked leg sell the March 112 call, the current bid/ask is 50 bid at 100, however that will change. The risk on the trade is if the market goes over 112 where you will be short a synthetic futures contract. Profit potential is $2000 at or below 108.
Current open option positions
Financials
2-8 March Dow Jones- With the correction of the November Rally apparently behind us, we should see the market trade between 10800 and the high established at 11085 for the next 30/45 days. Recommendation- One by Two Bull Call Ratio Spread, a strategy that we use when the upside of the market may be limited. Buy the March 108 call and sell two 110 calls. The trade is running about $200 and with the market at 110 this trade will see an intrinsic value of $2000. The risk is if the market goes above 11200, where the trade runs out of money. The risk on the downside is limited to the cost of the spread.
2-3 S&P 500- Yesterdays pull back opens the door for a short term option play to the upside. We feel that the market has a strong chance of spending the next two weeks trading between here and it’s recent high. Recommendation- February S&P Diamond Call Butterfly using the February options that expire on February 17th. Buy the S&P 1280 call, sell two 1290 calls and buy the 1300 call. This trade has limited risk ($350), no margin and a maximum profit potential of $2500 at 1290. The best part is that this trade will return a profit with the market anywhere between 1281.40 and 1298.60…a huge 17.2 point profit playground!!!
1-19 March T-bonds- Yesterdays key reversal on the 61.8% Fibonacci Number is a convincing argument to our belief in the downside. Recommendation- Bear Put Spread with a Naked Leg- Buy the March 114 put, sell the March 112 put and also sell the March 116 call. The risk on the trade is above 116, the profit is a maximum of $2000 with the market at or below 112 intrinsically.
1-17 March Dow Jones- The heat generated from the cyclical November through March up-move seems to have run out of steam. Now the market should digest it’s massive run pulling back below the 10700 area. Whether it actually drops or simply trades sideways is the question, then again any drop in prices could be net with “irrational enthusiasm” you just never know. Recommendation- Bear Put Spread with a Naked Leg. We are looking at this from a “swing trade” perspective. Buy the March 109 put and sell the March 107 put creating a bear put spread. We like selling the 113 call for premium collection. Based upon current number it appears that this trade could be an even money trade or possibly a small credit in which case the re would be no intrinsic risk unless the market went above the 113 level. The profit potential is as much as $2000 with the market at or below 107 at expiration. There is a margin requirement as well as unlimited risk above 113 so use proper risk management as well as personal financial judgment on the trade.
1-24 ADJUSTMENT- We took a profit on the March 109 put and the 113 Call, holding the short 107 put
1-6 March T-Bonds have recently corrected 61.8% of the drop from 118 down to the 110 area. We see this as a possible selling opportunity, however due to the recent Fed statements that we may be in the “8th inning” of the rate raising cycle, we also want to be prepared for the possibility that we may see the market plateau and trade sideways or even higher. Recommendation- Bear Put Spread with a Naked Leg- Buy the March 114 put and sell the 112 put which is a bear put spread. This part of trade is where we are planning or hoping to generate a profit of as much as $2,000 if the market returns to it’s old low or under 112. The Naked Leg we are selling is the 117 which is 1 handle below the recent high giving us enough room to let the market breath while still collecting enough premium to reduce the cost of the spread to around $100.
1-3 March Dow Jones- The market appears to have found support in an area that could be the new “bottom of the range” for the next few months. Keeping in mind that there is still room to the downside for a correction based upon the Fibonacci retracement theories, we are using a diamond butterfly strategy so if we do see the market drop down we can adjust the position by taking profits on the short calls leaving the long calls on for the run back to the top of the range. On the other hand, this trade is designed to take advantage of the market if it maintains its current trading range. Recommendation-Using the February options! Buy the February 10800 call, sell two (2) February 11000 calls, and (optional) buy the 11200 call for protection. The trade is currently being bid at $400 which gives the trade an intrinsic profit range from 10840 all the way up to 11160, with a maximum profit shown at the 11000 with about $2000. If the market is under 108 or above 112 you risk would be limited to the premium. More aggressive traders could consider leaving off the 112, which would make this trade almost free. ADJUSTMENT 1-25 Look to buy back the 110 calls
12-20 March T-Bonds have formed what we see as a triple top at the 113 area, now we don’t for a minute expect them to go quietly into that good night without some volatility, so we are taking advantage of this by setting up a short strategy with either naked calls or credit spreads. Either way. Recommendation- #1 Sell the March 115 calls; the risk is unlimited if the market runs higher and expires above 115-16 which is the reverse breakeven. The premium of around 34 collects about $500 . Another bearish strategy is a credit spread where you buy the 115 call and sell the 114 call, this trade should collect about $300 and the risk is limited to $1000 MINUS the premium collected or about $700.
Grains
2-2 July Soy Meal- Meal is a one of the two main by products of Soy Beans and like the beans we feel that there is a strong possibility to see prices much higher in the next few months. We have just seen a pull back of what we feel could be the first wave up in the wave count. This could be one of the last buying opportunities at this level. Recommendation- Buy the July 2000 call, sell the July 2400 call, and also sell the July 1700 put. The current option prices suggest that this could be an even money trade with the risk lying under the 1700 area. The profit potential at or above 2400 is $4000 based on intrinsic value.
1-27 July Corn- The market looks like a perfect bullish set up with an alignment of both technical and fundamental factors. We also are looking for the possibility of seeing some unexpected surprises to help fuel the market beyond last years highs. Recommendation- There are many ways to take advantage of the market. #1 Bull Call Spread with a Naked Leg Buy the July 240 Call and sell the 280 call which has a profit potential of $2000. Sell a naked leg of a 220 put to bring the cost of the trade to under $100. The risk is if the market drops below 220. WE ALSO LIKE BUYING OUT OF THE MONEY CALLS for $200 or less. We would buy calls from 350 all the way down. Hey you never know, seeing above 350 is not out of the question and if it is going to happen it will happen between here and mid June.
1-23 May Soybeans- The heat is on, the beans filled the gap that was under the market on our last week recommendation and found support along the baseline of the harvest lows. This has pushed the technicals more into line for an potentially explosive (yes I said it) upside move. Now I am sure you have all heard of the “ Horsemen of the Apocalypse”, but do you know the “3 Sisters of Inflation”? Soybeans Sugar and Silver. Two of the three have recently doubled in value so at this point we have to ask…what about the third sister beans? Recommendation- Synthetic Call Option- Buy a May Futures contract while simultaneously purchasing an at the money put. The May 580 put is about 24 cents. This trade has limited risk and unlimited profit potential without a margin requirement. If the cost of protection is too expensive you can reconstruct the put “protection” by using a bear put diamond butterfly where you buy the 580 put, sell two 560 puts and buy the 540 put which would protect you to the 560 level.
1-19 May Wheat- The sell off in Wheat seems to have come to an abrupt end at a key Fibonacci support level, if this level holds we should, in theory take out the last high by about 25%. Recommendation- You can be aggressive with a Bull Call Spread with a Naked Leg- Buy the May 330 Call, Sell the 360 Call and the Naked Leg is selling the 310 put…or a more conservative trade would be buying the 330 call, selling two 350 calls then buying the 380 call creating a diamond butterfly.
1-12 SOYBEANS- Beans, possibly the number one food staple of the world. An integral ingredient of many foods (both natural and processed), feed for our animals, and even an alternative fuel for our diesel engines. Beans are undeniably a huge part of our lives. We are currently at the threshold of a “seasonally friendly” time period in the bean price cycle as farmers begin to think about the year to come and the industry contemplates how the crucial planting period will go. It is never perfect, it is always too wet, too dry, too cold, too early, too late…you get the point…it’s Always too something. The seasonal up cycle in Beans usually begins in the next few weeks and lasts until (with chips and dips) sometime between Mid-May to Mid-June. Now this is no big secret pretty much priced into the option market. Our mission is to design an option trade that eliminates the obstacles and opens the gates to what we hope we can call “profit city”. This trade is based on a combination of both seasonal as well as technical factors, as shown on the chart. For more in depth analysis check out the “movie” at either www.alaron.com or www.optionologist.com Recommendation- Due to the difference in pricing between the May and July options, as well as the fact that the May options expire before we usually see the seasonal peak, we are taking a multi-month approach combining the best of both expirations to form a “staggered offense”.
May- Buy the May 600 / 700 Bull Call Spread, sell the May 560 put to collect additional premium.
12-13 March Wheat- We should see Wheat prices rise due to both technical as well as seasonally driven factors. Prices are somewhat cheap and worldwide demand looks promising. Recommendation- Bull Call Spread with a Naked Leg; Buy the March 320 call, sell the March 350 Call and sell the March 300 put. The premium cost should be around $100. The Profit potential at 350 is $1500, the risk is if the market is under the 3.00 level and would be the equivalence of being long a futures contract from that level.
11-18 Corn- Scale Trading with Options-The reports say that there is a glut of corn just sitting in storage…apparently there is more corn than we know what to do with, thus the current low price. Since everybody and their brother is currently bearish on this market and there can’t possibly be any more bad news (for bulls) coming out until the next harvest, it makes sense to start to build into a long term bullish option position. We are currently using a scale trade with the May and July future contracts with a 5 cent scale. In an option scale trade, instead of just adding on when prices drop, we add on in time increments. Unfortunately due to the nature of an option being an eroding asset, it is a multi step procedure using combination of near and long term expirations as well as the implementation of out of the money options which are, of course, the most likely option to expire worthless based upon statistics. Recommendations- Ok First you need to understand that the market usually goes up or down in an overall 45 degree angle…what we are attempting to show you is the amount of time it took to get from the high to the low.
The market, once it starts to go up will take about the same amount of time so keep that in mind, plus also remember that it is almost impossible to pick tops or bottoms so don’t even try. The game plan is to take advantage of the market using a multi-month, multi-option staggered offense that takes advantage of the underlying nature of an option. Each of the following options are about $100 each. The plan is that every 20 days to add on additional calls ONLY if you can get average down your strike price for about the same amount of money, so maintain your budget. With historic volatility at an extreme low, we would only be OPTION BUYERS at this time March Corn- Buy the March 210 calls, May Corn- Buy the May 250 calls, July Corn- Buy the July 300 calls
11-2 May Soybeans- While the general population sits on their hands waiting a sign that the harvest lows have been established, we have designed a credit spread to get a jump on the market. Recommendation- This is a "short wing" butterfly that is designed to make money in a choppy sideways market. Buy the May 620 call and simultaneously sell 2 700 calls as well as 2 540 puts for a credit of over 10 cents or $500. The nature of the short strange (the 700 calls and the 540 puts) should absorb the zigzag volatility while the long 620 is there to take advantage of the break out to the upside. Once the market does give us a sign we can adjust the position accordingly.
10-31May Corn- One of the first things a trader learns is that you should never sell a quiet market. Corn is so quiet that it's actually getting kind of creepy. I guess that it's fitting considering that it's Halloween. In reality all the bearish news is out and we are at the end of the harvest, so the lows may be in for the rest of the year, however there is no denying that we are still in a downtrend. What to do....what to do... Using a combination of a long futures contract and short options we can set up an almost perfect counter trend trade that will allow us to "weather the storm" if prices continue to trade lower without giving up the strong possibility that this the quiet before the storm of higher prices. Keep in mind that corn is currently our number one pick as far as being under priced. We also recommend a scale trade strategy in corn, email me for the details! pbrittain@alaron.com Recommendation- Buy a May futures contract at the market and simultaneously sell two May 240 calls to collect premium for a cushion. Also buy at least one (I'd buy several) May 250 calls for around $125 each.
10-13 March Corn- The corn market is currently trading at a key support level. Not only is it near contract lows, it is also trading in the neighborhood of its long term low. In other words, corn=cheap, and cheap is good, it's an essential part of the perpetually sought after "buy low / sell high" formula that seems to elude so many traders. This may be it, one of the best buying opportunities (based upon price) in the corn market in the last 20 years. Yes it has been lower, but only a handful of times, you can't argue that the price isn't low at this level, and if adjust it for inflation (real inflation, not political propaganda), it is extremely cheap. Recommendation- We never "just buy" options, we usually create some sort of spread where we sell as many options as we buy...NOT THIS TIME! Due to the low volatility of the corn market, the options are extremely UNDER VALUED. Buy the March 220 call options for around $400. Based upon a Fibonacci correction of the drop from the last high we should at least see the market run to the $2.50 area. This brings up the "out of the money" calls...buy the March $2.50 calls for around $100 each because there is a strong possibility of the market reaching the $3.00 level before expiration. We would ALSO recommend SYNTHETIC CALLS, buy the futures contract as well as either the $2.00 or 2.10 put for protection
9-9 March Wheat- With the market at what we perceive to be the "Harvest Lows" as well as possible delivery disruptions due to the aftermath of Katrina, we feel that this trade may be a cake walk, key word being may, nothing is easy and there is never such a thing as a free lunch. Recommendation- Buy the March Bull Call Spread with a naked leg. Buy the March 340 call, sell the March 400 call, and also sell the March 320 put. The profit potential on the trade is limited to $3000 with the market trading above the $4.00 level. Risk on the trade is (besides the premium paid) is if the market is under 320, where you have the equivalent risk of a futures contract from that price...above 320 and below 340 your risk will be the premium paid which appears to be around $150. Good Luck...
Energies
1-27 April Gasoline- There is a strong seasonal uptrend that occurs between February and the end of May. After yesterdays massive drop we feel that we may see an earlier start to this move than the normal “Groundhog Day” buying opportunity. Recommendation- Buy the April 195 call, sell the April 205 call for a 10 cent profit potential. Sell the April 165 put to collect premium. The risk on the trade is the premium paid, which should be little or actually a credit with the market above the 165 price. Under the 165 price you have unlimited risk as you would in a futures contract.
1-24 April Crude Oil- Over bought and out of gas, in our opinion. Recent turmoil and fears of cut backs in production pushed the market back up near the highs of last August on the April contract. The comment from a key OPEC player stating that they would pick up production to cover any other members failure to meet their production quota helped put a damper on the market. We see the possibility of Crude becoming range bound between 60 and 70 dollars. Recommendation- There are several ways to take advantage of the market at this level, we like the following. April Diamond Put Butterfly- Buy the April 66 put, sell two April 62 puts, and buy the 58 put for protection. The trade should run under $500 which would be the risk if the market is outside the long strike prices.
Bear Put Spread with a Naked Leg- Buy the April 66 put and sell the April 62 put for a Bear put spread, we like selling the April 74 Call as a Naked Leg, this could and should be filled at even money or a small credit…but you know Crude! The risk on the trade is above the 74 level.
Metals
2-14 July Silver- Today’s low of 937 (not shown on chart) is the 61.8% Fibonacci Retracement of the swing higher. This is a normal digestive move and should result in seeing the next high come in somewhere in the 10.50 range, if the Fibonacci Scale holds. The funny thing about silver is that tends to go through periods of “irrational exuberance” with Silver Bulls far out weighing almost every type of trader, and the $10 level is a huge to them, so there is no telling how high or how fast the market pumps once it attains solid footing at that level. Recommendation- Bull Call Spread with Naked Leg- At the moment this is a credit spread! Buy The July 950 Call sell the July 1050 Call and then sell the Naked 875 Put. The risk on the trade is under 875, where you share the risk of being long a futures contract. The profit potential is limited to $5,000. Based upon the credit we are currently seeing the trade is profitable from 868 all the way up intrinsically. There is a margin requirement.
March Silver has just completed a 50% Fibonacci Correction. So far support at that level appears to be holding which in turn means we should see the current high of 935 taken out by approximately 25% (over 10.00) on the next run. Recommendation- Buy the March 900 call and sell the March 1000 call for the Bull Call Spread; also sell the 780 put to collect premium. The profit potential is $5000. The risk is unlimited under 780 so be careful if the market breaks that level. The cost of the trade appears to be under $200 which is the risk should the market stay above 780 and below 900.
Happy Trading.
12-14 March Copper- The run higher in Copper prices has been breath taking…but nothing goes up forever and we feel that a correction may be near. We have structured a trade that if our timing is off, can be easily adjusted. The Diamond Put Butterfly in Copper! Recommendation- Buy the March 195 put, sell two 185 puts and buy the safety cap, the March 175 put. The trade has limited risk, no margin and will profit anywhere between 193.5 and 176.5. We are looking for the market to plateau around here, pull back and start trading below 200 and above 180. Good Luck. By the way, the trade should cost between $2-300 per spread.
Meats
2-9 April Lean Hogs- It appears the hogs may be turning to the upside based upon combination of several technical indicators. We can possibly see hogs return back to the pre-sell off levels within the next 45 days. There are several ways to take advantage of this market. Recommendation- Bull Call Spread with a Naked Leg- Buy the April 64 call, sell the April 69 call as well as the 58 put. The risk is unlimited under 58, the profit potential is 5 cents intrinsically or $2000.
2-9 June Live Cattle- Cattle found support at the 50% Fibonacci support level. The market appears to be over sold as we enter into a strong seasonally bullish time frame. Growing up working on a dairy farm I learned that “you have to milk the cow while it’s in the barn”. Recommendation- Bull Call Spread with a Naked Leg- Buy the June 85 call, sell the June 89 call as well as selling the June 82 put. The risk is under the 82 level where you have unlimited risk, the profit potential is limited to $1600.
11-2 February Lean Hogs- I know we recently recommended a similar position in December, but this trade looks just as exciting! We are heading into a "seasonally bullish" time period in the Feb Hogs. We also see several technical factors that confirm our belief that we should see prices rise into the end of '05. Recommendation- Buy the February 66 call and sell the February 70 call for the bull call spread, also sell the Feb 62 put for a naked leg. The trade should run around a credit of $100, your risk is under the 62 level where you have the same risk as being long a futures contract, the profit potential at 70 our higher is $2000 based on intrinsic value.
11-2 February Live Cattle- Market is trading in over bought territory and should adjust to a lower level which according to the Fibonacci Scale should be around the 88/89 price range. Recommendation- Put Diamond Butterfly- Buy the Feb 93 put, sell two Feb 89 puts and buy the Feb 85 put. This trade is inexpensive, has limited risk and no margin requirement. The profit playground (where you make money) lies between 9275 and 8525 based upon current quotes showing that the trade should run around $100. The profit potential is greatest at the center point of the butterfly (89) at around $1600. When can cows fly? When they are butterflies! OK kill me now.
Currencies
2-28 June Yen- Recent changes in Japans economic stance appears evident on a long term chart and we may see the Yen return to its former glory. Looking at a monthly chart we see evidence\ that the market may have bottomed on a Fibonacci support level.
Looking at the June contract we see the market trading off of a double bottom at the 8550 level. Allen Ward likes the following strategy Recommendation- Buy a Bull Call spread with a Naked Leg- Buy the June 8800 Call and sell the 9050 Call, this is the Bull Call spread part of the trade, our profit on this spread is 2.5 points or $3125. The cost of this part of the trade is around $925…so we are also selling a 84 put naked leg to collect premium lowering our cost to about $75. There is a margin requirement as well as risk if the market drops below 84, which would be the same risk as being long a futures contract from that level.
1-30 Australian Dollar- The Aussie Dollar failed once again to break through resistance forming a triple top. Three strikes and it is out! We are looking for the market to return back to the bottom of the range which is below the 7300 level. Recommendation- Bear Put Spread with a naked leg- Buy The March 7450 put and sell the March 7300, also sell the 7600 call for the naked leg. The trade should run around $150 with the risk if the market trades above 76 where you would be synthetically short a futures contract from that price. The profit potential is $1500 with the market at or below 7300 based upon intrinsic value.
1-12 March Swiss Franc- The charts are indicating that we are at the upper end of the trading range. All of our indicators are showing that we could and should see prices head lower. Of course there is always the possibility of the market breaking through the current resistance area so keep that in mind. Also there is a strong seasonal tendency for lower prices. Recommendation- We like the March Bear Put Spread with a Naked Leg. Buy the March 7800 Put, sell the March 7600 Put as well as the March 8050 Call. The risk on the trade is if the market goes above 8050 where you would experience the equivalent risk of being short a futures contract. The profit potential based upon intrinsic value is $2500 with the market trading at or below 7600. The cost on the trade according to current bid/ask is about 9 tics or around $125. The plan is to catch the markets return to the bottom of the current range.
12-21 March Yen- Even in the face of Japan increasing their interest rate from Zero, the Yen is basically lifeless after its short covering rally. We see a resumption of the down trend if there are no surprises. Recommendation- Bear Put Spread with a Naked Leg…Buy the March 8550 put, sell the 8250 put creating a Bear Put Spread, for the Naked Leg we are selling the 8900 calls figuring they are far enough above the market to give the trade breathing room while still collecting enough premium to lower the cost of the trade to under or around $100. The risk on the trade is unlimited above 89, the same as a futures contract, between 8550 and 8900 your risk is the premium paid, the profit potential at or under 8250 is $3,750. This strategy has a margin requirement. For variations of this trade please contact us for a custom configuration.
12-5 March Euro Currency- As we have stated in the past we are overall long term bullish on the dollar based upon the Fed’s stance on interest rates as well as other global economic factors. Recommendation- Bear Put Spread with a Naked Leg- Buy the March Euro 116 put and sell the March 114 put creating a 2 handle bear put spread, for the Naked leg we like selling the 121 call. This trade should bring in a couple hundred dollar credit, the risk is at and above the 121.20 level, where you would assume the same risk as a futures contract short from that price. The profit potential is $2500 intrinsically.
COTTON, COFFEE, COCOA, SUGAR & THE JUICE
2-14 July Cocoa- The market is at the edge of a seasonally weak period and appears bearish based upon several technical ingredients which are listed on the charts and identified by the various circles and arrows. Recommendation- Bear Put Spread with a Naked Leg- Buy the July 1500 put, sell the July 1300 put and also sell the July 1650 call for premium collection. The trade is currently be quoted at “even money” means that the risk on the trade is at and above 1650. From 1650 down to 1500 your risk is commission, from 1500 down to 1300 you are in the profit zone of the trade which maxes out at $2000. We also recommend buying the 1200 puts outright just in case we really see the market sell off.
1-30 May Coffee- We are seeing red flags and sell signals across the board, both technically and fundamentally. Seasonally we usually see prices fall from right around here right through mid April, we are also seeing sell signals on the various technical indicators we monitor. Recommendation- Bear Put Spread with a Naked Leg- We are buying the May 120 put and selling the 110 put for the bear put spread, we are collecting premium by selling the 140 call which is well above the recent highs.
1-19 May Cotton- We are in a seasonally weak time of year coupled with strong technical evidence that we should and could see prices return to the recent lows…pronto. Buy the May 55 put, sell the May 51 put and sell a naked call at 58. The trade should be an even money trade or small credit, however with the huge bid/ask spread in cotton, you never know. I’d pay up if I had to. The risk is if the market goes above 58, the profit potential at 51 is $2000 intrinsically.
1-18 May Sugar- Technically the market is extremely overbought and overdue for a correction. Looking at a long term chart we see that the price of sugar has more than doubled in value over the last 7 months without a meaningful digestive move. Looking at our seasonal indicators we see strong evidence that the market should be at the threshold of the drop we are looking for. Based upon our other belief that it isn’t smart to play on train tracks, we are treading cautiously. Aggressive Trade- Bear put spread with a naked leg. Buy the May 1500 put, sell the May 1300 put and for the naked leg we are selling the 1700 call. The trade should be an “even money” trade or small debit. The risk lies above the 1700 level. Less Aggressive- We like actually buying the May 1300 puts or higher or even a bear put spread using the 1200/1300 level as a target.
11-7 May Cotton- Cotton is entering into a seasonal up trend period coming off of a 78.6% Fibonacci Retracement combined with an oversold/buy indication on the stochastics. The only thing that makes this opportunity more exciting is the cost of the trade which should be less than $100. The risk lays under the 50 cent level where you would have the same risk as being long a futures contract…the profit potential is a maximum of $2000 with the market above 58 cents. Recommendation-Buy the May 54 Calls, sell the May 58 Calls and collect premium by sell the May 50 puts.
11-30 March Orange Juice- The months of December & January usually show big seasonal sell-offs in the juice market. We feel this year will be no different; especially considering the market is way overdue for a correction. Recommendation- There are several different exciting option possibilities, although we like the 1X2 Ratio Put Spread. Buy the March 120 put and sell 2 March 110 puts. The out of pocket cost should be minimal and the risk besides the premium paid, is if the market sells off below the 100 level which we don’t think will happen based upon the Fibonacci support levels. You can also employ a put diamond by buying an additional 100 put or if you are an “out of the money” option lover, just buy the 100 put and try to play the extrinsic play.
11-18 March Cotton- Cotton’s recent pullback seems to have found support at the 78.6% Fibonacci Retracement. If this support level holds we feel that the market has a strong potential move higher in a “faster than normal” move. The market is also at the threshold of a “seasonal uptrend” time period. Recommendation- Bull Call Spread with a NAKED leg. Buy the March 5300 call and sell the March 5600 creating a bull call spread, then sell the March 5000 put to collect premium. We currently see this trade at around even money but we are willing to pay up to $150 for the spread. The risk is if the market drops below 50 where we will experience the same risk as being long a futures contract from that price, the profit potential is limited to $1500 with the market trading at or above 5600 based upon intrinsic value.
9-28 March Coffee- There is no argument that coffee prices are far from the highs we saw earlier in the year and we are now approaching the time of year where we have seen the market bottom in past years, however the coffee analysts are calling for even more downside. We feel that all the bearish news surrounding coffee has already been absorbed by the market and that's why it is trading at these low levels, in other words all the bad news is out and the market could be a potential powder keg awaiting a spark of bullish news to spark off a run to the upside. We realize that we are presently holding December options that are a little painful at this time, hopefully relief is in sight. Recommendation-Bull Call Spread with Naked Leg- Buy the March 100 call, sell the March 120 call and sell the March 80 put for a debit of 60 ($250ish)or better. The risk with the market above 80 and below 100 is the premium; below 80 you have the same risk as being long a futures contract from that level. The profit potential is limited to $7,500 with the market at 120 or higher.
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