Crude Oil Trade Complete; Storm Brewing for OJ?

August 13, 2007

We got stopped out of the second half of our Oct. Crude Oil 70 put options today when a price spike hit our stop at $1.50 for a profit of about $500. Overall we grossed about $1,300 on two contracts that cost us about $2,000.

As our risk was locked in at $2,000, the $1,300 return is less than what we like. We usually won't look at a trade with less than a 2 to 1 profit versus loss, and prefer our trades to have anywhere from a 3-to-1 to 5-1 reward. We're going to analyze this trade in more detail and report back on what we could have done better to have improved our return - or maybe it was a trade we just shouldn't taken and tied up capital that could have been used elsewhere.

Tropical Storm Watch for OJ
At the risk of sounding morbid, we finally got a tropical depression, but it's still too early to tell if it will of risk to Florida and its orange juice crop.

Judging by how the market reacted (a quick price spike touched the 135 mark for Nov. OJ, but the contract fell and settled down almost 1% to 130.50) it amy prove to be a non-event. Natural Gas did the same thing - spiking briefly on the news and eventually closing lower for the day.

The good news is the Nov. 160 calls have dropped to 2.65 each (just under $400). If OJ can drop back to the 120 area, we should be able to scoop up the 160 calls for about $300 each, which should be just before the September hurricane starts moving the premium upward.

For now, we're waiting.

Soy Meal Next on Tap
Midwest Future's owner, Bill Zechmann, has released a recommendation for buying soy meal calls as demand for hog feed continues to rise. We'll take a look at this trade in more depth next time.

In the meantime, if you have any questions or comments drop us an email at davidbrown@midwestfutures.com.

Futures and options trading is speculative and involves a high degree of risk. The risk of loss can be substantial. Neither the information presented or any of the opinions expressed constitute a solicitation for the purchase or sale of any commodities.