Market: July Crude Oil (CLN7)
Tick value: 1 point = $10
Trade description: Long Call
Option expiration date: 06/15/07
Max risk: approximately $300
Max profit potential: Unlimited (target is 300% of the risk.)

Buy a July 2007 Crude Oil 69 calls for approximately 30 points ($300) to open a position.

With Tropical cyclone Gonu bearing down on the Straights of Hormuz the time for a short term price spike in crude oil is upon us. Gonu is a category 4 storm and is headed straight for the Gulf of Amman which leads to the Persian Gulf through the Straights of Hormuz. This region has not seen one of these types of storms in modern times and is in no way prepared for them. Roughly 40% of the worlds oil travels through the Straights of Hormuz. The impact that this storm could have on shipments of crude oil out of the Persian Gulf could be catastrophic and this trade is designed to position us long in case this storm does in fact reek havoc in the region.



Profit Goal
Or profit goal is to catch a move back up to $70 or above, at 70, the trade would have over a 200% profit on it. Break even point is 69.30 assuming a 30 point fill. 100% gross profit would be realized at expiration if the market is at 69.60.

Risk Analysis
Max risk, before commissions and fees, and assuming the above mentioned fill would be $300. The full premium paid for the option is lost at expiration if the market expires below 69.

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.