• Market:  November 2006 Rough Rice (RRX6)
• Tick value: 1 point = $200
• Option Expiration: 10/27/06   
• Trade Description: Strangle
• Max Risk: $700
• Max Profit:  unlimited

Buy one November 2006 Rough Rice 10.60 call and buy one November 2006 Rough Rice 9.60 put for 3.50 points ($700) or less to open a position.

Technical / Fundamental Explanation
Rough Rice is one of the more obscure markets that we as commodities traders trade. It is obviously dominated by Asian influences more than any other. This year we have seen a dramatic drought in many of the rice growing regions across parts of Asia. Weather concerns can have a huge impact on agricultural markets as many of you know and this market is especially susceptible to an even more exaggerated move on these fears because it is so thinly traded. We are recommending a strangle because events such as the current one unfold typically in one of two ways: either 1. the fear that has recently gripped and pushed this market higher turns out to be warranted and this is just the beginning or 2 . the fears are over blown and we see a dramatic correction back to much lower prices. Since the situation with regard to the current crop is still very much in play and there is little sense in trying to second guess what mother nature is going to throw at us, a strangle gives us the best positioning for either outcome.

Risk Analysis
Max risk assuming a 3.50 point fill is $700. This occurs at expiration with Lumber trading between 9.60 and 10.60.

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.