Trade Description
Buy one May wheat 330 call and sell two May Wheat 360 calls for a cost of approximately $150.  Options expire on Friday, April 22nd, 2005.  Margin is roughly $350 but can fluctuate depending on market price in relation to time value and volatility. 

Explanation
After a strong surge in grain prices, led by beans, grains seem to be getting ahead of themselves despite seasonal and future fundamental concerns partially backing the market hysteria over the past few weeks.  Wheat remains a value play, but lacks volatility momentum to suggest a mega bull run over the next two months.  Therefore a trade design that benefits from increased option premiums but keeps cost and risk low as long the market remains below 3.87 is recommended.  A profit zone at expiration is from 3.33 to 3.87.  You can also adjust the trade to a 320 by 350 call spread to allow for some retracement and still be in the profit zone, but the trade will cost a little more and bring the upside risk in at a lower price.

Profit Scenarios
Max profit is $1,350 and occurs at expiration with the market at 3.60.  Profit is reduced by $50 per point below 3.60 to 3.33 and from 3.60 to 3.87 (3.33 is the downside breakeven price at expiration and 3.87 is the upside breakeven, assuming an entry price of $150).                                   

Risk Scenarios
Max risk in unlimited on the upside.  Loss occurs at expiration with the market trading above 3.87, and is $50 per point above that price.  Time value hurts the trade with the market trading near 3.87.  Loss is $50 per point below 3.33 down to 3.30 (or below), at which point max loss to the downside (cost of trade - $150) would occur.

Disclaimer
There is risk of loss in all commodities trading.  Commissions and fees vary per individual and therefore are not included in profit, cost and risk scenarios.  Please consult a licensed broker before you trade for the first time.  Losses can exceed your account size and/or margin requirements.  Commodities trading can be extremely risky and is not for everyone.  Some option strategies have unlimited risk.  Educate yourself on the risks and rewards of such investing prior to trading.  James Mound Trading Group, or anyone associated with JMTG or moundreport.com, do not guarantee profits or pre-determined loss points, and are not held monetarily responsible for the trading losses of others (clients or otherwise).  Past results are by no means indicative of potential future returns.

James Mound, owner of JMTG Brokerage LLC, MoundReport.com and author of the book 7 Secrets, writes the Weekend Commodities Review Newsletter. Receive your free weekly subscription to the Weekend Review by e-mail. Click here.