• Market:  December 2006 Soybeans (SZ6) Dec. Beans trade off of the Jan. Contract.
• Tick value: 1 cent = $50
• Option Expiration: 11/21/06   
• Trade Description: Short Condor Credit spread
• Max Risk: $400
• Max Profit: $600
• Risk reward ratio:  1.5:1

Buy one December 2006 Soybean 620 put and buy one December 2006 Soybean 680 call and at the same time, sell one December 2006 Soybean 640 put and sell one December 2006 Soybean 660 call for a combined credit of 12 cents ($600) or better to open a position.

Technical / Fundamental Explanation
The recent movement in the grain markets has been quite extraordinary. As the market attempts to digest the weather related developments in Australia, the volatility of wheat, corn, and soy has increased as well. This trade is an attempt to capitalize on the increased volatility premium of near the money options in the soybean market while managing the risk through the purchase of an out of the money option on both sides of the market. Essentially, these two â�,��"safetyâ�,� options eliminate the unlimited risk associated with selling naked options. From a technical point of view, soybeans have rallied without any type of consolidation along with the rest of the grains and have become somewhat overextended. Additionally, of all the grains soybeans, are the only contract that has not broken out above resistance during the recent rally. As a result soybeans considered the technical laggard. We at Odom and Frey believe that in the near term the 660 will act as technical and fundamental resistance on the December contract. Due to the fundamentals that have supported this rally we do not expect an extreme pullback, we are only looking for a brief pause between 640 & 660. Furthermore, with only 25 days to expiration the increasing rate of time decay will benefit this trade and not work against it, giving us the opportunity to adjust the trade if necessary due to market fluctuations.

Profit Goal
Max profit, assuming a 12 cent fill, is the 12 cents ($600) and occurs with January 2006 Soybeans trading anywhere between 660 and 640.

Risk Analysis
Max risk, before commissions and fees, and assuming a 12 cent fill, is 8 cents or $400. This occurs at expiration with Soybeans trading anywhere below 620.00. or above 680.00.

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.