• Market:  May Cotton (CTK7)
• Tick value: 1 point = $5
• Option Expiration: 04/13/07   
• Trade Description: Bull call spread
• Max Risk: $500
• Max Profit: $1500
• Risk reward ratio:  3:1

Buy one May 2007 Cotton 57 call, and sell one May 2007 Cotton 61 call for a combined cost and risk of 100 points ($500) or less to open a position.

Technical / Fundamental Explanation
The recent pullback has given us a great opportunity to get into this market after a strong bottom has been formed. The range expansion that occurred on Tuesday shook out the weak hands, and now the market appears ready to push to new highs. Open interest is on the rise as we approach some resistance near 55, once that level is broken we expect a strong move higher, targeting 60 in the near term.

Profit Goal
Max profit, assuming a 100 point fill, is 300 points ($1500) and occurs with Cotton trading at or above 61 at expiration. Break even point is 58.

Risk Analysis
Max risk, before commissions and fees, and assuming a 100 point fill, is $500. This occurs at expiration with Cotton trading below 57.

Derek Frey is Head Trader at Odom & Frey Futures & Options.

Risk 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.