Market: January 2008 Orange Juice (JOF8)
Tick value: 1 point = $150
Trade Description: Bear Put Spread.
Option Expiration date: 12/07/07
Max risk: approximately $600
Max Profit potential: $1,650
Risk Reward Ratio: Just under 3:1

Buy a January 2008 OJ 135 put while selling one January 2008 OJ 120 put for a combined max cost and risk of 4.0 points ($600) or less to open a position.

The OJ market has seen a sharp move higher today and we are reading this as a short squeeze. We could see it go a bit higher but with the 2007 hurricane season ending with no hurricanes in sight. the fear that has kept this market up should begin to come out. Our Proprietary models are also issuing sell signals today as are slow stochastics as you can see in the chart below.



Profit Goal
Or goal is to catch a move Back below 130. Break even is 131 assuming a 4.0 point fill. Max. profit would be realized at expiration if the market is anywhere below 120.

Risk Analysis
Max risk, before commissions and fees, and assuming the above mentioned fill would be $600. The full premium paid for the spread is lost at expiration if the market expires above 135.

Derek Frey is Head Trader at Odom & Frey Futures & Options.

Risk Disclaimer
Past performance is not indicative of future results. Trading futures and options is not suitable for everyone. There is a substantial risk of loss in trading futures and options.