Buy two September Crude Oil 71.00 calls and sell one November Crude Oil 72.00 call for a credit of $50. This is a ratio calendar spread that allows you to leverage out a near term price spike without up front cost. Crude oil, while not necessarily the most hypersensitive to Gulf hurricanes, offers the best option design and premiums to play a seasonal rally within the energy sector. The market is on the uptrend of a head and shoulders pattern and has filled out a solid Fibonacci retracement and is back above the retracement resistance.

Expiration
September options expire 8/16/07 and November options expire 10/17/07

Margin
Approximately $750, but can fluctuate based on time, volatility and price.

Risk Scenarios
The risk lies in the long September calls not going in the money and having to cover the short November call prior to the September options' expiration. The risk would be the time premium in the November call at the time of covering it. While this is dependant on the price of the market and volatility at the time, I would recommend covering the spread if loss hits $1,200.

Profit Scenarios
Max profit is theoretically nearly unlimited and is based on the extra long September call option. I recommend that, for every two spreads entered into, you exit 3 September calls when their combined value equals $500 more than the combined value of the two short November calls, thus leaving you with 1 free September call and a locked in $500 profit.



James Mound is the head analyst for www.MoundReport.com, and author of the commodity book 7 Secrets. For a free email subscription to James Mound's Weekend Commodities Review and Trade of the Month, click here.