• Market:  October 2006 Euro Currency (ECZ6) *Oct. Options trade based on the December futures price.
• Tick value: 1 point = $12.50 
• Option Expiration: 10/06/06   
• Trade Description: Bull Call Ladder Spread
• Max Risk: $375
• Max Profit:  $1500
• Risk Reward ratio 4:1

Buy one October 2006 Euro Currency 129 call, also buy one October Euro Currency 132.50 call, while selling one October Euro Currency 130.50 call, and sell one October Euro Currency 131 call. For a combined cost and risk of 30 points ($375) or less to open a position.

Technical / Fundamental Explanation
For those of you following along, we did in fact skip the Euro trade for the month of August. Now with the benefit of hindsight we are glad we skipped it last month since the market has more or less stalled in that time. We are beginning to see signs that the uptrend is about to resume. Today's late rally only further backs up that idea. With the Feds hands now all but tied with regard to future rate hikes, the peg that has held up the Dollar is about to come out. So this trade is a low cost way to buy an at the money call and bet that we test the upper end of the already well established range. The max profit range (130.50-131.00) coincides with the old highs from earlier this summer. So this trade gives us a huge range of 290 points in the Euro in which we can profit and a max profit point that is 50 points wide.

Profit Goal
Max profit assuming a 30 point fill is 120 points ($1500) giving this trade a 4:1 risk reward ratio. Max profit occurs at expiration with Euro Currency trading between 130.50 and 131. The trade is profitable at expiration if the Euro Currency is trading any where between 129.30 and 132.20 (break-even points), which means we have a band of 290 points in Euro Currency.

Risk Analysis
Max risk assuming a 30 point fill is $375. This occurs at expiration with the Euro Currency trading below 129.00 or above 132.50.

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.