Option Letter Daily

• Market:  March 2007 Sugar (SBH7)
• Tick value: 1 point = $11.20
• Option Expiration: 02/09/07   
• Trade Description: Long call 
• Max Risk: $504
• Max Profit: unlimited

Buy one March 2007 Sugar 1250 call for a maximum cost and risk of 45 points ($504) or less to open a position.

Technical / Fundamental Explanation
Sugar has just recently supported out at a long term support level. On the daily chart below you can clearly see a flat topped rising wedge pattern that is often a sign of a market bottom. This market is beginning to turn and we are now seeing signs that this market could begin to climb. This is a longer term trade than usual but with good reason as we feel this market has the ability to resume its longer term up trend and retest the old highs. If we get the rally that we expect we can turn this into a “free trade” by selling a further out of the money call for the same premium paid for the 1250.

Profit Goal
Max profit, assuming a 45 point fill, is unlimited. The break even point at expiration is 1295.

Risk Analysis
Max risk, before commissions and fees, and assuming a 45 point fill, is $504. This occurs at expiration with March sugar trading below 1250.

Derek Frey is Head Trader at Odom & Frey Futures & Options.

Disclaimer
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