Market: September Wheat (WU7)
Tick Value: 1 cent = $50.00
Trade Description: Bull call spread
Option Expiration Date: 08/24/07
Max Risk: approximately $500
Max Profit Potential: $1,000

Buy a September 2007 Wheat 620 call while selling a September 2007 Wheat 650 call against it for a combined max risk and cost of 10 cents ($500) or less to open a position.

Wheat has seen an explosive move to the upside in the past few weeks. This was largely due to weather concerns during the harvest season. In the last few days wheat has staged a pullback that be believe could be a great buy the dip opportunity. The bottom line is, due to these weather concerns, harvest is significantly behind this year. The following is a quote from Dow Jones News wire: "The U.S. Department of Agriculture said in its weekly crop progress report that 11% of the crop was harvested as of June 17, compared to 34% last year and a five-year average of 20%. Kansas, the nation's top wheat-producing state, had harvested 2% of its crop, up from 1% last week and the five-year average of 19%." You can see by that quote that this years harvest is way behind schedule. Also from Dow Jones: "The slower-than-normal harvest pace could be fundamentally supportive to the wheat market, especially if early yield results in Kansas are disappointing, an analyst said." So this trade is designed to position us long wheat by buying this current dip and allows us to hold on through the critical wheat harvesting season over then summer. this trade seeks to maximize opportunities while minimizing risk and still maintaining a high probability of success.



Profit Goal
Or profit goal is to catch a move above 650. Break even point is 630 assuming a 10 cent fill. 200% gross profit would be realized at expiration if the market is at 650 or higher.

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 620.

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.