• Market:  March 2007 Wheat (WH7)
• Tick value: 1 cent = $50
• Option Expiration: 02/23/07   
• Trade Description: Bull call spread
• Max Risk: $500
• Max Profit: $1500
• Risk reward ratio:  3:1

Buy one March 2007 Wheat 530 call and at the same time, sell one March 2007 570 call for a combined cost and risk of 10 cents ($500) or less to open a position.

Technical / Fundamental Explanation
Wheat has been the leader of the grain complexes' rally so far this year. It has also lead the pullback that we have seen in the very recent past. The pullback has been a classic 50% fibonacci retracement and in doing that retracement we have also formed a classic bull flag. The current commitment of traders report shows small traders continue to remain short this market which should give this market lots of upside momentum as we blow through the short traders stop loss orders. Near term we are targeting a move back to the old highs at 560 but longer term a move to and through 600 is not at all out of the question.

Profit Goal
Max profit, assuming a 10 cent fill, is 30 cents ($1500) and occurs with March 2007 Wheat trading at or above 570. Break even is 540 so each cent that wheat rises above 540 is a profit of $50 until we reach 560.

Risk Analysis
Max risk, before commissions and fees, and assuming a 10 cent fill, is $500. This occurs at expiration with March Wheat trading below 530.

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.