Market: September Japanese Yen (JYU7)
Tick Value: 1 point = $12.50
Trade Description: Long Butterfly
Option Expiration Date: 09/07/07
Max Risk: approximately $500
Max Profit Potential: $2000

Buy a September 2007 Japanese Yen 84 and 88 call while selling two September 2007 Japanese Yen 86 calls for a maximum cost and risk of 40 points ($500) or less, to open a position.

The Japanese Yen has been on a decline for the past few months, but we have now seen this market begin to turn back up. We expect this market to move higher over the summer. The most immediate reason for this is the Bank of Japan meeting next week. We are expecting the BoJ to raise rates by .25 and that should continue to turn this market around. If the BoJ does in fact signal that they intend to raise rates, then that should begin to unwind the so called "carry trade" which should also push this market back up. On a technical level we have had almost every major technical indicator issue a buy signal in the last 72 hours, at the same time we are seeing bullish divergence between price and momentum which is a strong buy signal by itself. Rarely do so many indicators agree and it's even more rare that they would all be wrong at the same time.



Profit Goal
Or profit goal is to catch a move up to 86. Break even points are 8440 and 8760 assuming a 40 point fill. This means that we have a 320 point range in which we can profit at expiration!

Risk Analysis
Max risk, before commissions and fees, and assuming the above mentioned fill would be $500. The full premium paid for the spread is lost at expiration if the market expires below 84 or above 88.

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.