• Market: March 2006 Orange Juice (JOH6)
• Tick value: 1 cent = $150.00
• Option Expiration: 02/17/06
• Trade Description: Bear put ratio spread
• Max Risk: $ 1500
• Max Profit: $ $33,000

Sell one March 2006 OJ 125 put, and buy three March OJ 115 puts. For a combined cost of 0 ($0) to open a position.

Technical / Fundamental Explanation
OJ has been on quite a strong run for 2005. Between damaging hurricanes in both 2004 and 2005, diseases and recently frost fears this market has been able to reach levels not seen since 1998. Being in Florida, I know this is not going to sit well with some locals, but I must point out that the last three attempts OJ has made at maintaining a price above 125 have failed. Is there reason to expect this current rally to be different? Not really overall OJ still suffers somewhat from the low carb craze. And there has been no major change in the publics buying habits towards OJ so I expect like before that this rally will not be able to sustain itself. Seasonal strength for OJ tends to fall of in early January as you can see on the chart below. I included both a Daily and weekly chart so you could more clearly see why I am so bearish OJ. Overall this trade gives you a great way to catch a breakdown if it comes and be risking nothing if this time really is different.

Daily Chart

Weekly Chart

Profit Goal
Max profit is $33,000.  This occurs if OJ goes all the way to zero in price, which of course is in no way realistic, but a realistic goal is $1500. This would occur at expiration with March OJ trading at 105. Each cent OJ moves below the break-even point of 110 is a $300 profit per trade.

Risk Analysis
Max risk assuming 0 fill is $1500. This occurs at expiration with March OJ trading at 115. Loss is reduced by $150 at expiration for each cent above 115 until we reach 125 at which point the trade loses nothing. If OJ is anywhere above 125, this trade has no loss.

Matt Odom is the Managing Partner and Energy Analyst and Derek Frey is Head Trader at Odom & Frey Futures & Options.