Prepared by

Prudential Securities, Inc.

DECEMBER/MARCH COFFEE

Nearby coffee spreads have followed the direction of outright prices extremely closely for several months. For instance, when the December contract was trading near $2.00 per pound in May and September, its premium over March expanded to the 20-cent area as fears of extremely tight supplies caused huge buying of nearby deliveries. As outright prices declined toward $1.50 (primarily because there was little damage to the South American coffee crop during its freeze season), the December premium contracted sharply, falling to a premium of 9 to 10 cents over March. Historically, this inversion is relatively high, but for the life of these two particular contracts, it is near the lower end of the range.

Therefore, we are monitoring this spread for a potential entry level if support materializes between 9 and 10 cents, December premium. If we officially recommend this trade, we will risk 2 cents from entry in expectation of the December inversion expanding to the 15-cent area once again.

MAY/JULY PORK BELLIES

Unlike the March/May relationship, which has narrowed to almost even from a March discount of about 150 points, the May/July relationship has been relatively depressed with May holding its discount to July in the 100- to 150-point range. This is an extremely unusual situation because the May contract is usually the strongest one on a spread basis against both March and July. (In last week's outlook report, we recommended buying May and selling March at even, which has not yet been doable.)

It appears the May contract is quite undervalued, especially considering that the traditionally weaker March delivery is trading so well relative to May. Therefore, we recommend buying May and selling July, starting at a 100-point May discount and adding to the position until the spread reaches full carry of 150 points May discount. The objective is for May to trade at a 50-point premium over July. We will risk 70 points from entry on each position.

LONG MARCH/SHORT MAY WHEAT

At 3 cents and 6 cents May premium, with an objective of 10 cents May discount, risking to 12 cents May premium.

LONG AUGUST/SHORT SEPTEMBER SOYBEAN MEAL

At 30 points September premium, with an objective of 500 points September discount, risking to 300 points September premium.

LONG JULY/SHORT SEPTEMBER SOYBEAN MEAL

At 250 points September premium, with an objective of 300 points September discount, risking to 500 points September premium.

LONG MAY/SHORT SEPTEMBER SOYBEAN MEAL

At 450 points September premium, with an objective of 200 points September discount, risking to 800 points September premium.

LONG 2 NOVEMBER S&P 690 PUTS/

SHORT 2 NOVEMBER S&P 760 PUTS

At 30 points credit, collected twice, with an objective of zero, holding the position as long as the market is above 760.

LONG DECEMBER/ SHORT FEBRUARY CATTLE

At 160 points February premium, closed out at 115 points February premium for a profit of 45 points before commission.

November 3, 1997Don Selkin

Prudential Securities, Inc.

One New York Plaza, New York, New York

OPTIONS

Spread Trading
The Spread Trader
Consensus National Futures and Financial On Line Index

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