• Market:  July 2006 Sugar (SBN6)
• Tick value: 1 point = $11.20
• Option Expiration: 06/09/06   
• Trade Description: Bull Call Spread
• Max Risk: $560
• Max Profit:  $1680
• Risk Reward ratio 3:1

Buy one July Sugar 17.00 call while selling one July Sugar 19.00 call for a combined cost and risk of 50 points ($560) or less to open a position.

Technical / Fundamental Explanation
Sugar continues to become and trade more like an energy contract. This is because Sugar is quickly becoming an alternative source of energy. Sugar, along with corn, is one of the primary ingredients in ethanol. With President Bush championing the use of alternative fuels and with Crude oil prices remaining well above $60, the time to seek out and utilize alternatives is at hand. As more and more people begin to embrace alternatives and with Gas Prices remaining at or near multi year highs, ethanol demand should continue to explode. This is a longer term trade than we normally do but sugar is a very slow moving market that tends to trend for long periods of time as we have already seen in the rally we had for most of 2005. On a weekly or monthly chart one should clearly be able to see the rather pronounced bull flag that we have formed. This is a great longer term buy and hold trade.

Profit Goal
Max profit assuming a 50 point fill is 150 points ($1680) giving this trade a 3:1 risk reward ratio. Max profit occurs at expiration with Sugar trading anywhere above 19.00. The trade is also profitable at expiration if sugar is trading any where above 17.50 (break-even point).

Risk Analysis
Max risk assuming a 50 point fill is ($560). This occurs at expiration with sugar trading below 17.00.

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

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.