Market: June 30-Year US T- Bonds (USM7)
Tick value: 1 point = $15.625
Trade description: Long Put
Option expiration date: 05/25/07
Max risk: approximately $200
Max profit potential: Unlimited (Target is 100% of the risk.)

Buy a June 30 yr. T-Bond 111 put for approximately 13 points ($203.13) to open a position.

Today we have the rate decision from the FOMC at 2:15 p.m. EST. The consensus is that Mr. Bernanke and company will leave interest rates unchanged. The main issue many traders are looking for is a change in verbage towards inflation. With Gas prices at all time highs and Gold closing in on $700, signs of inflation are everywhere. Also the Dollar is near a 30 year low. These factors should cause Mr. Bernanke to try and "jawbone" the Dollar back up which means his statement should be hawkish. If this happens then bonds should begin to trend lower and we are targeting a move back towards 110 by the expiration date of this trade.



Profit Goal
Or profit goal is to catch a move back down to 110 or below. Break even point is 110-25 for the 111 put. 100% profit would be realized at expiration if the market is at 110-18 for the 111 put.

Risk Analysis
Max risk, before commissions and fees, and assuming the above mentioned fill would be about $200 for the 111 put. The full premium paid for the option is lost at expiration if the market expires above 111.

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

Risk 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.