Market: September Cocoa (CCU7)
Tick Value: 1 point = $10
Trade Description: Long Put
Option Expiration Date: 08/03/07
Max Risk: approximately $300
Max Profit Potential: Target is 200% of the risk. (1860 on the Sep. Cocoa contract.)

Buy a September 2007 Cocoa 1950 puts for approximately 30 points ($300) to open a position.

Cocoa has been on a strong up trend pushing through the 2100 level. the last time cocoa was this high was 2003 and the market fell quite hard after topping out near 2400. We have a number of indicators that fired off sell signals in this market this morning and we are therefore recommending buying these low cost puts to try an capitalize on an overbought thinly traded market that could easily retrace back below 1900 by then end of the month.



Profit Goal
Or profit goal is to catch a move below 1900. Break even point is 1920 assuming a 30 point fill. 100% gross profit would be realized at expiration if the market is at 1890.

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 above 1950.

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.