• Market:  July 2007 Oats (ON7)
• Tick value: 1 cent = $50.00
• Option Expiration: 06/22/07   
• Trade Description: Buy Puts
• Max Risk: $350
• Buy July 2007 Oats 240 puts for 7 cents ($350) or less to open a position.

Technical / Fundamental Explanation
The Grain complex has been on a very good run for many months now. However, with all the preasure we are seeing on foreign markets, Asia in particular, there is an ever increasing possibility of a slow down in the dramatic growth they have seen in recent years. If growth in Asia slows, then many commodities could see a pullback as well. Oats tend be lead the rest of the grain complex and they have already seen a pull back off of recent multi-year highs. Looking at the long term monthly chart below you can clearly see that it looks like we have formed a spike. Each time the market has formed a spike like this in the past, it has then corrected significantly. This is simply a cheap long term trade that positions you short for very little risk. Using past pull backs as a guide one can reasonably expect a 40 - 80 cent pull back or even more given how much we have rallied and the time we have until expiration.

Profit Goal
Or profit goal would be a move back below 2.00. If we meet that objective the profit will be 33 cents ($1650) on our $350 risk giving you almost 5:1 on your money. Our break even point assuming a 7 cent fill is 2.33 so any move below that would result in a profit.

Risk Analysis
Max risk, before commissions and fees, and assuming a 7 cent fill, is $350. This occurs at expiration with Oats trading above 240.

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.