• Market:  October 2006 Crude Oil (CLV6)
• Tick value: 1 point = $10
• Option Expiration: 09/15/06   
• Trade Description: Bull Call Spread
• Max Risk: $500
• Max Profit:  $2,500
• Risk/Reward Ratio: 5:1

Buy one October 2006 Crude Oil 75 call and sell one October 2006 Crude Oil 78 call for 50 points ($500) or less to open a position.

Technical / Fundamental Explanation
Crude Oil continues to be one of the most volatile commodities for us to trade. This volatility creates many opportunities but at the same time it makes managing risk even harder. As I mentioned in the newsletter on Friday we continue to be bullish energy. Even more so now that we have be able to maintain support above the critical $70.00 level. With continued geopolitical concerns, the prospect of at least one hurricane this season, coupled with the fact that supply is down year over year, the path of least resistance remains higher. This trade is the best risk defined way to position long crude for the next month or so that we could find. We are not trying to call a break out to new highs, though that would be great for this trade, but rather we are simply looking to rally back to at least the mid point of the range if not test the upper end of it.

Profit Goal
Max profit assuming a 50 point fill is 250 points ($2500) and occurs at expiration with the Crude Oil trading at or above $78.00.

Risk Analysis
Max risk assuming a 50 point fill is $500. This occurs at expiration with the Crude Oil trading below $75.00.

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.