Market: July Orange Juice (JON7)
Tick value: 1 point = $150
Trade description: Long Put
Option expiration date: 06/15/07
Max risk: approximately $450
Max profit potential: Unlimited (Target is 100% of the risk.)

Buy a July OJ 160 put for approximately 3 points ($450) to open a position.

OJ had been on a very long term up trend since 2004, but that trend has now decisively broken down. It is now making a classic bear flag as you can see on the chart below. This market is destined for a much deeper correction after the huge run up it has seen. A 50% Fibonacci retracement would carry this market back down to about 133. We feel that we could see a retest of the recent lows near 150 over the next 30 days. Assuming a three point fill we would double our investment if OJ traded below 154 and double it again at 151.



Profit Goal
Or profit goal is to catch a move back down to 154 or below. Break even point is 154 assuming the three point fill. 100% gross profit would be realized at expiration if the market is at 154.

Risk Analysis
Max risk, before commissions and fees, and assuming the above mentioned fill would be about $450. The full premium paid for the option is lost at expiration if the market expires above 160.

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.