• Market:  May 2006 30-year US T-Bonds (USK6)  **May options trade based off of the June futures contract.
• Tick value: 1 point = $15.625
• Option Expiration: 04/21/06   
• Trade Description: Long Condor FOMC spread
• Max Risk: $703.125
• Max Profit:  $1296.875
• Risk Reward ratio 2:1

Buy one May 30-year US T-Bond 112 call, also buy one May 30-year US T-Bond 110 put, while selling one May 30 year US T-Bond 114 call, and also sell one May 30-year US T-Bond 108 put, for a combined cost and risk of 45 points ($703.125) or less to open a position.

Technical / Fundamental Explanation
This is a variation on our otherwise normal bond strangle. We are simply trying to offset some of the premium paid for the trade by selling these far out of the money options. This trade is basically holding both a bull call spread and a bear put spread at the same time. So as with any FOMC trade that we do, we are not trying to call the direction of the market but rather looking for a volatility spike over the next two weeks or so. With all the hubbub surrounding today's meeting there is a high probability that we will see some exciting moves in bonds in the coming days.

Profit Goal
Max profit assuming a 45 point fill is 83 points ($1296.875) giving this trade a 2:1 risk reward ratio. Max profit occurs at expiration with 30-year US T-Bond trading either above 114 or below 108. The trade is also profitable at expiration if the 30-year US T-Bond is trading either above 112-23 or below 109-09 (break-even points).

Risk Analysis
Max risk assuming a 45 point fill is ($703.125). This occurs at expiration with 30-year US T-Bond trading between 110 and 112.

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.