• Market:  September 2006 Dow (DJU6)
• Tick value: 1 point = $10
• Option Expiration: 09/15/06   
• Trade Description: Bear Put Spread
• Max Risk: $600
• Max Profit:  $2,400
• Risk/Reward Ratio: 4:1

Buy one September 2006 Dow 111 put and sell one September 2006 Dow 108 put for 60 points ($600) or less to open a position.

Technical / Fundamental Explanation
The Dow has been stuck in a trading range for all of this summer. We are at the upper end of the now well established range and again seem unable to follow through to the upside. The market is plagued with conflicting economic data coupled with the current geopolitical climate that no matter where we turn seems to be negative at best. While many in the media would have you believe that all is well, this is little more than a veil that once pulled back will reveal the ugly truth. That ugly truth is that we are sliding deeper and deeper into debt with fewer and fewer ways out. I am not trying to predict a massive break down in the market but rather a continued inability to follow through to the upside, followed by a near term slide lower to test the lower end of the range which lies just below 10,800.

Profit Goal
Max profit assuming a 60 point fill is 240 points ($2400) and occurs at expiration with the Dow trading at or below 10,800.

Risk Analysis
Max risk assuming a 60 point fill is $600. This occurs at expiration with the Dow trading above 11,100.

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.