• Market:  September 2006 Corn (CU6)
• Tick value: 1 cent = $50
• Option Expiration: 08/25/06   
• Trade Description: Bull Call Spread
• Max Risk: $300
• Max Profit:  $1200
• Risk vs. Reward Ratio 4:1

Buy one September 2006 Corn 250 call, while selling one September 2006 Corn 280 call, for a combined cost and risk of 6 cents ($300) or less to open a position.

Technical / Fundamental Explanation
Corn has been selling off for most of the spring and early summer. We are beginning to see signs of a bounce. That bounce is based on deteriorating crop conditions due to all the crazy weather we have seen this year as well as all the talk about ethanol. With a number of new ethanol companies going public we should see more and more demand for corn which is what we here in the US primarily use to produce ethanol. Turning to the technicals we are clearly seeing a market that is oversold and stochastics have just issued a buy signal so we are really getting confirmation of a turn around here. While we have been long and wrong this market earlier in the season we feel this market has now corrected enough to warrant a long trade that carries us through the rest of the summer. Again this trade is a simple low cost way to be bullish corn for the next two months which are the most critical months for the corn crop each year.

Profit Goal
Max profit assuming a 6 cent fill is 24 points ($1200) giving this trade a very attractive 4 to 1 risk reward ratio. the break even point on the trade at expiration is 256. We can profit on this trade no matter how high corn goes as long as it finds its way above 250 over then next few months.

Risk Analysis
Max risk assuming a 6 cent fill is $300. This occurs at expiration with the Corn trading below 250.

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

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.