• Market:  July Corn (CN6)
• Tick value: 1 cent = $50.00
• Option Expiration: 06/23/06   
• Trade Description: Bull Guts Spread
• Max Risk: $700
• Max Profit: unlimited

Buy one July 2006 Corn 270 call, and buy one July 2006 Corn 250 put, while selling a July 2006 Corn 260 put for a combined cost of 4 cents ($200) or less to open a position.

Technical / Fundamental Explanation
Judging by the response I got on the last grain trade, I can only assume that many of you remain unconvinced of the coming rally in grains. Last week we saw the beginning of the move that I talked about in last weeks soybean trade. The overall outlook for corn remains strong. While this years crop is big, demand remains quite high. Also the surge in demand for corn that is converted into ethanol is also a point that should not be ignored. Even if Crude Oil prices fall by $10 or more per barrel (which I doubt) demand for ethanol and other alternatives should continue to climb. This trade is structured so that you can be long corn with unlimited upside potential while at the same time keeping downside risk to a minimum.

Profit Goal
At expiration, assuming a 4 cent fill, the break even point is 274. Each cent above 274 is $50 profit, so at 300 we would have 26 cents in profit or $1300.

Risk Analysis
Max risk assuming a 4 cent fill is ($700)(4 cents plus the difference between the put that was bought and the put that was sold which was 10 cents=14 cents or $700). This occurs at expiration with corn trading below 250.

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.