Hogs have seen a very steep decline in the past few weeks, but we are now approaching a strong support level and expect to see this market turn back up in the near term. Many indicators like stochastics and RSI are about to issue buy signals and our proprietary model is showing a high probability of a reversal in trend in the coming days. This trade offers a very attractive risk to reward ratio as well as a low absolute dollar figure to risk. Hogs can trade any where between 56 and 64 for us to profit so we have a huge 8.00 point range in which we can profit.
Buy a December 2007 Lean Hog 55 and 65 call while selling two 60 calls for a max cost and risk of 1.0 point ($400) or less to open a position.
Our goal is to catch a move anywhere between 56 and 64 on the Dec. futures
price. Break even assuming a 1.0 point fill would be 56 and 64. A 400%
gross profit would be realized if the futures price expires at 60.
Max risk, before commissions and fees, and assuming the above
mentioned fill would be $400.00. The full premium paid for the spread
is lost at expiration if the market expires above 65 or below 55.
by Derek Frey
Odom & Frey
Call us at 1-866-636-6378