• Market: June 2006 Crude Oil (CLM6)
• Tick value: 1 tick = $10.00 
• Option Expiration: 05/17/06 
• Trade Description: Bear put ladder Spread
• Max Risk: $350
• Max Profit:  $1650
• Risk Reward ratio about 5:1

Buy one June 2006 Crude Oil 69.00 put, also buy one June 2006 Crude Oil 64.00 put, while selling one June 2006 Crude oil 67.00 put and selling one June 2006 Crude Oil 66.00 put, for a combined cost and risk of 30 points ($300) or less to open a position.

Technical / Fundamental Explanation
The Energy complex has been on fire (no pun intended). While long term we remain quite bullish, near term we see a number of factors that could cause at least a short term correction. I know this is not going to make me popular, but I see stormy skies on the horizon for the energy complex. Notice on the weekly chart below that we have just today touched the upper edge of our well established trading range. We may very well go higher over the next day or two but by next week we will begin to see a stall and then a fall. This is range bound trading at its best. We may see a bit of a head fake here this week but don't be fooled. There are many technical indicators that one can use to verify this but I am looking at an even odder indicator...the CNBC indicator, which is simply something that says when you hear it on main stream "news" it is time to get out. Recently crude oil and metals have been grabbing all the headlines. I am expecting both of these markets to "cool" in the near term. Again long term I am still a bull but even bulls need a rest from time to time. This trade can also be used to hedge downside exposure for those of you who are long oil.

Profit Goal
Max profit assuming a 35 point fill is 170 points ($1650) giving this trade about a 5:1 risk reward ratio. Max profit occurs at expiration with Crude oil trading anywhere between 67.00 - 66.00. This trade is also profitable at expiration with Crude Oil ending anywhere between 68.65 - 64.35 (break even points), meaning we have a range of $4.30 at expiration that crude oil can end up in and still result in some kind of profit for us.

Risk Analysis
Max risk assuming a 35 point fill is $350. This occurs at expiration with Crude Oil trading above 69.00 or below 64.00.

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.