• Market:  December 2006 Oats (OZ6)
• Tick value: 1 cent = $50
• Option Expiration: 11/21/06   
• Trade Description: Strangle 
• Max Risk: $500
• Max Profit: unlimited

Buy one December 2006 Oats 190 put and at the same time, buy one December 2006 Oats 210 call for a combined cost and risk of 10 cents ($500) or less to open a position.

Technical / Fundamental Explanation
Oats are one of the more obscure grains that we trade. Oats tend to be a leading indicator for the rest of the grain complex. Oats are also heavily correlated to Corn. Recently oats had a rally that brought us back to the $2.00 per bushel range, but that rally has now stalled and we seeing the market consolidate around that point. These consolidations almost always precede a breakout. While we have have no idea which direction the market will break out to, with this trade we don't care! Since we will own both the call and the put we don't have to care about direction. We simply want to see the market move one way or another. We have recently seen a lot of stories in the news about weather concerns in the grain belt. These issues should lead to an increase in volatility which in turn should lead to a breakout of some kind. So this trade positions us to be able to profit in oats no matter the direction as long as there is movement one way or another. We also have the added benefit of unlimited profit potential should conditions in the grain belt get considerably worse.

Profit Goal
Max profit is unlimited.

Risk Analysis
Max risk, before commissions and fees, and assuming a 10 cent fill, is $500. This occurs at expiration with Oats trading between 1.90 and 2.10.

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.