OPTION TRADE OF THE DAY!
11/25/09
Cotton has been on a tear to the upside since September. The commodity should be heading into a period of consolidation and possible price decline going into the early part of 2010. Daily RSI indicators are showing the market skating along traditionally over bought territory. Based on historical trend, cotton could retrace 9 to 12 cents by May of 2010.
To take advantage of this pullback, we like buying the May Cotton 78/ 72 put spread and selling a naked 84 call. The trade should cost between $250 to $300. The risk on the trade is over the 84 futures price on the May Contract, where we are synthetically short a futures contract. The profit potential is limited to $3000 minus the price paid for the legs and transaction costs (3 commissions. If you want to be a little more aggressive & not pay as much up front, you could sell the May 83 Call, which drops the cost down to around $200.00 plus commissions.
There is a substantial risk of loss in trading futures and options
Past performance is not indicative of future results.
The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.
FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY AREINTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY,OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASERWILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HISRIGHT ON AN OPTION DEPENDING ON HOW THE OPTION’S STRIKEPRICE COMPARES TO THE UNDERLYING FUTURE’S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICESMOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYINGFUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION OF THE UNDERLYING FUTURES CONTRACT.
Richard Roscelli
Whitehall Investment Management
Phone 877 270 8403, 702 463 0718
