Trade Description
Buy one November Euro Currency 127 put & buy one November Euro Currency 129 call for a cost of approximately 17 ticks ($212.50).  Margin and max risk is the cost of the trade.  Options expire Friday, November 3rd, 2006.   Please note November options trade off of December futures.

Explanation
A strong 1 week euro rally has placed the market dead smack in the middle of its channel heading into a series of critical fundamental economic reports that culminate with Fridayââ,¬â"¢s employment report.  Current volatility analysis shows that near the money short term puts and calls are at some of the lowest levels since the euro currency came into existence.  This ââ,¬Ëœdead premiumââ,¬â"¢ is an excellent place to buy a long strangle ahead of anticipated volatility.  This trade design benefits from low cost, risk and margin, with unlimited profit potential. 

Profit Scenarios
Profit scenarios vary by market activity and exit strategy, but in theory is unlimited.  The concept behind the trade is that the movement of the market and the increase in value of one side of the strangle exceeds the total cost of the trade.  However, if the market looks to have choppy price action, or to trade both positive and negative before the expiration of the options, then legging out of the trade when each side reaches profitability would yield maximum returns.  It is recommended to exit one side on a profit of $300 over and above the cost of the trade, and to hold the other side for a possible reversal.

Risk Scenarios
Max risk is the cost of the trade.  To reduce exposure it is recommended that you enter into two spreads allowing you to exit 50% of the profitable half of the trade (for example, on a euro selloff, exit one of the two puts, and hold the two calls) when 75% of the total cost of both spreads occur.

James Mound is the head analyst for www.MoundReport.com, and author of the commodity book 7 Secrets. For a free email subscription to James Mound's Weekend Commodities Review and Trade of the Month, click here.

Disclaimer
There is risk of loss in all commodities trading.  Commissions and fees vary per individual and therefore are not included in profit, cost and risk scenarios.  Please consult a licensed broker before you trade for the first time.  Losses can exceed your account size and/or margin requirements.  Commodities trading can be extremely risky and is not for everyone.  Some option strategies have unlimited risk.  Educate yourself on the risks and rewards of such investing prior to trading.  James Mound Trading Group, or anyone associated with JMTG or moundreport.com, do not guarantee profits or pre-determined loss points, and are not held monetarily responsible for the trading losses of others (clients or otherwise).  Past results are by no means indicative of potential future returns.