In yet another sign of possible inflation in certain areas of the world economy, cotton is hitting 40-year highs. This may even be post-Civil War highs, although it may not be on an inflation-adjusted basis.

While some may assume that the recent spike in cotton prices is due to problems in Egypt, data from the United Nations indicates that Egypt is not among the top six world producers of cotton.

It looks as if the only cotton-specific ETF that is currently listed here is the iShares DJ/UBS Cotton Total Return (BAL). Unfortunately, the options on BAL have extremely wide bid/ask spreads currently, so we would avoid that for option traders.

The recent uptrend in the daily BAL chart has accelerated this week in its upward parabolic nature. Usually this type of trend will have some further upside momentum, but a sharp correction is also very likely -- basically volatility is likely to be very high/increase in the short-term. A pullback to the 100 area or a bit below that is likely a good short-term entry point based on the strong technical picture.

There also are many Agricultural Product based ETFs that may contain the cotton commodity, such as PowerShares DB Agriculture (DBA), DowJones Ag Total Return (JJA) and iPath Ag Commodity Index (DJP). Cotton futures can also be traded through futures accounts.

As far as individual companies that can be affected by the sharp rise in underlying cotton prices, this is a relatively complex issue that will require more in-depth research. Many companies have their own hedging operations and supply chains, so it would tend to be on a stock-by-stock basis. Certainly worth checking into is whether large cotton clothing manufacturers such as Fruit Of The Loom (now owned by Berkshire Hathaway) (BRK.B) and HanesBrands (HBI) are possibly affected by this.

Bottom line from my perspective is that cotton prices are certainly in a speculative upward bubble. However, you don't want to jump in and make bearish bets on such strong upside momentum. On the flip side, don't let greed make you forget to take profits on quick upside moves. That's the best way to profit on a parabolic up move in my experience -- take many quick long-side profits along the way, but don't double/triple up your exposure, for example. The trend is your friend, as they say. And volatility will very likely continue to remain high/increase, in both directions.

Price Headley is the founder and chief analyst of BigTrends.com.