• Market:  December 2006 Corn (CZ6)
• Tick value: 1 cent = $50
• Option Expiration: 11/21/06   
• Trade Description: Long Call
• Max Risk: $300
• Max Profit: unlimited

Buy one December 2006 Corn 260 call for 6.0 cents ($300) or less to open a position.

Technical / Fundamental Explanation
The grain markets have now finally begun to show signs of a rally. We have patiently waited for this most of the summer. This trade is simply one that gives us unlimited upside in the event that corn really does take off from here. We are nearing peak harvest season now and typically grains rally from the "harvest lows" through the rest of the year. We chose corn even though much has been made about how much corn there is this year. Prices for wheat are much higher and many farmers have already or will be switching from corn to wheat. This will mean that next year there will be much less corn planted and at the same time much more wheat will be planted. This is all bad news for the farmers, and as usual they will be a day late and a dollar short. They will switch to wheat from corn just when wheat prices are about to come down and corn prices are about to go up. It is the fact that they are switching from corn to wheat that will drive this in the first place so all this begs the question; can a US farmer ever get a break? Unfortunately the answer seems to be no. So to take advantage of all this crop switching we are recommending this simple long call in corn. As you know these are futures markets and we are therefore dealing with the future, so the fact that the actual switching will take place long after this trade expires should not matter because it is the perception of this switch that matters, not the actual switch itself. That is why by the time the farmer gets the new crop into the ground all of this price movement will have already taken place leaving farmers to feel just as whipsawed as we traders sometimes feel. On a technical note we see a very large short position being held by small traders at this time. Those shorts will be the "fuel" that drives corn to higher prices as those traders are forced to cover there shorts. Remember, market always move in the direction that hurts the most people, and for corn that direction is now up. We are also seeing a classic 1-2-3 bottom formation taking shape which only strengthens the bull case.

Profit Goal
Max profit assuming a 6 cent fill is unlimited.

Risk Analysis
Max risk assuming a 6 cent fill is $300. This occurs at expiration with corn trading below 260.

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.