S&P 500
The stock market should provide reasonable opportunities for premium collection as continued market jitters create choppy volatility. The likelihood of the market establishing a strong trend in the near term is minimal and the stock market is likely to offer a wide trading range through year end. With the VIX at extreme highs this sector offers impressive opportunities for selling calls on rally days (20 points or more) and puts on consecutive days of selling pressure (40 points or more within 4 days). Fundamentally there are numerous reasons to be bearish: housing, slowing economy, weak dollar, etc. Technically the market remains long term bullish as trend line support and sustained market resilience make for compelling bull arguments. Combative technicals and fundamentals tend to equal choppy trade.



Currencies
Extreme price moves in the euro and Canadian dollar highlight a once dull currency sector that has been on the move in recent weeks. The dollar is at all time lows but that does not necessarily imply a long term weak dollar; rather a value buying opportunity for the last quarter of 2007. The Canadian dollar had the largest 2 week rally in its history in September and is offering the potential for a major long term top by setting up this spike high bar on a monthly chart. The euro appears to be in a two steps forward - one step back - trend over the course of two to three months. Based on recent activity, this will likely offer a short play for 300-400 points in the near future. Moreover, the EU will be forced to place monetary policy restrictions to force their currency to go down after massive gains have devastated the export markets for these countries. Currency intervention is a strong possibility, but rate cuts are also a likely policy shift that will assist in a pullback in the euro's value. The pound set 26 year highs but has lacked momentum since. This may provide some premium selling opportunities in the future, but for now it would be a market to avoid. The yen has retraced a bit of the mega-move that launched it from critical lows as the carry trade provided huge daily swings. This market is not likely to be done with its volatility and I suspect long strangles will provide good opportunity if placed wide enough from the market and out to December in time.

Grains
Corn is at a critical juncture, having retraced about 50% of the approximate 25% retracement from the highs. Does the market surge to test and break the previous highs despite extremely high projections for crop production and acreage? There are four reasons to maintain a bullish stance in corn:

1) Wheat: As a substitutive commodity high wheat prices will keep corn at inflated levels.

2) China: A massive devastation to many China crops this year will force them to be import dependant.

3) Yield: Corn yields should come in 10-12% below normal which greatly reduced total crop numbers. Yields have historically been much lower than anticipated in years in which average plantings occurred this late.

4) Oil: Because of corn's newfound role as a source of ethanol production it now has a strong correlation to crude oil prices. As energy prices remain inflated it will continue to support corn prices.

There are, however, several issues facing this market as the potential for a bumper crop, a possible pullback in crude oil and/or wheat prices and a setup for a bailout of strong fund support for this market all weigh heavily on the future of corn prices. Call prices remain cheap and is a solid and straightforward way to play fresh highs in this market without the exposure of futures.

Wheat has entered a period of market hysteria and I would keep an eye out for the exchange to expand limits and hike margins aggressively in this market. Establishing long term put positions in this market substantially far away from current prices offers an excellent risk to reward ratio. Vertical markets like this tend to have V-shaped reversal patterns when they turn, which offers potential downside volatility.

Soybeans offer what could be the greatest upside potential within the top 3 in this sector because of the possible China demand and low net production numbers ahead.

Rice is the sleeper play amongst the grains and continues to offer a strong technical outlook. Fundamentally the rice market may experience a similar surge as wheat when the China crop becomes known. It is estimated that up to two thirds of China's short grain rice crop will be below grade for personal consumption. While the rough rice we trade on the exchange is long grain rice, it will see strong upside if a short grain rice supply problem becomes apparent.

Energies
An impressive surge to fresh all time high crude oil prices has the market at a level of extreme volatility and heightened sensitivity to potential supply problems. This market is setting up a strong breakdown and should see continued downside pressure as a late winter will make for significantly improved supplies. It is important to avoid short futures and to focus on puts as upside risk from weather and geopolitical concerns make futures excessively risky. Selling deep out of the money premium on the call side to pay for puts is, however, worth the risk in my opinion and establishes a substantially reduced cost factor.

If a late winter puts pressure on crude oil then it is logical to play rbob gas long against short heating oil, which has already experienced a widening price spread ahead of seasonal confirmation.

Natural gas is a wild card play that offers the potential for call premium spikes and a technical recovery after a possible bottom was established earlier this month.

Softs
Coffee remains a market of focus as drought conditions in the #1 producing country in the world, Brazil, has brought about serious concerns over supply. Throw in some hurricane damage in Latin America and this market could see a serious late year run. Vietnam's banner crop is exaggerated as much of the crop is not of a high enough quality to meet contract specs for export. Recent choppiness can be attributed to the market getting some weak longs out and a general expansion in daily volatility.



Cocoa prices remain strong and the market is setup to break to fresh highs as swollen shot virus, amongst other crop issues, and politics in the Ivory Coast remain hot-button issues that will continue to bring buyers into this growing demand market.

Sugar has developed a solid technical base and is a strong buy with anticipated price retracement following a severe long term plunge from historical highs. July call options remain some of the cheapest premium I see anywhere.

Cotton volatility remains high as the market continues to recover from multi-year cycle lows. The technicals match fundamentals at this point and all point to higher prices ahead. Buy dips.

OJ is showing signs of a recovery after retracing nearly 50% from the highs. Despite two consecutive hurricane seasons without any damage to the crop, OJ remains a market that is very capable of resuming its rally. It takes a good 5 years for a newly planted OJ tree to produce and the market remains susceptible to Cankor, hurricanes and frost. Look for opportunities to pick up some long term calls on price dips.

Lumber prices have dropped as building in the states has declined to a virtual standstill. As the Fed cuts rates to ease the housing crisis we may begin to see a bottom in this market. It is worthy of some long term call buying as premiums are relatively inexpensive.

Metals
Gold has completely broken out of a long term channel and appears to be extremely bullish on a technical level. How do you call a top in a market at all-time highs? Look at the correlated markets. Does the U.S. dollar, which is inversely correlated to gold, have much further downside before seeing intervention by the U.S. or the E.U.? Can crude oil spike 20% in under two months and continue higher without retracing? The likelihood is that gold has made a false move higher and will be met with extreme volatility and severe selling to the downside. As we enter a fourth quarter that may see a flight to quality in gold and bonds and weakness in the stock market, we may see an expansion in volatility in the metals sector. Look to scoop up discounted put spreads in gold, silver and copper and be contrarian in a market full of bulls.

James Mound is the head analyst for www.MoundReport.com, and author of the commodity book 7 Secrets. For a free email subscription to James Mound's Weekend Commodities Review and Trade of the Month, click here.