• Market:  May 2006 Coffee (KCK6)
• Tick value: 1 point = $3.75
• Option Expiration: 04/12/06   
• Trade Description: Bull Call Spread
• Max Risk: $750
• Max Profit:  $3000
• Risk Reward ratio 4:1

Buy one May 2006 Coffee 125 call, sell one May Coffee 135 call, for a combined cost and risk of 200 points ($750) or less to open a position.

Technical/Fundamental Explanation
Coffee has had a very strong start for 2006. Recently we have seen a bit of a pullback and we are using this pullback as a buying opportunity. This pullback has been attributed to rolling by funds from March to May contracts, rather than a real fundamental breakdown. Look for Coffee to hold support above 110 and then begin to rally again. First target is a move back above 120 but longer term target is 140 or above. This trade is a simple bull call spread that gets you long a near the money call with over 60 days to go before expiration.

Profit Goal
Max profit assuming a 200 point fill is 800 points ($3000) giving this trade a 4:1 risk reward ratio. Max profit occurs at expiration with Coffee trading above 135. The trade is profitable at expiration if the Coffee is trading anywhere above 127.00(break even point).

Risk Analysis
Max risk assuming a 200 point fill is $750. This occurs at expiration with the Coffee trading below 125.

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.

Matt Odom is the Managing Partner and Energy Analyst and Derek Frey is Head Trader at Odom & Frey Futures & Options.