Prepared by

Ira Epstein & Company

Orange Juice

This market has been getting stomped on a regular basis following extremely bearish Crop reports. Another Crop report will be released this Thursday. Current weather predictions are for non- freezing temperatures. With January futures at 79.75, 85 calls can be had for approximately $180. Why buy calls in such a bearish scenario? Because most everyone is expecting a bearish report and traders appear reluctant to get long in front of the report. Once it's out of the way, that fear may well disappear and a rally could ensue.

Coffee

Coffee margin too high? The over-hyped El Nino got you nervous? Here's an inexpensive contrarian trade: buy a 140 May put and sell a 125 May put. Net cost–about $1275 (not much considering expiration is four months away and the futures margin is $10,000.) Potential extends out to about $4300 for the $1250 risk.

Crude Oil

The latest Commitment of Traders report has the funds shifting to a net short, the largest since 1993 when prices got down to nearly $14 bbl. Sadaam has apparently achieved his immediate goal: an increase in what the UN will let him export. OPEC just increased their quotas to try to defend their market share. For you owners of heating oil calls: Winter comes every year–“It probably won't catch this market by surprise.” Check the prices on April puts in the $15-16 range.

Sugar

Sugar remains at historically low volatility levels. Long strangles are indicated on the May contract. With the futures at 1225, an 1150 put/1300 call can be purchased for about $425–and it doesn't expire till April 9. How long can this market remain in equilibrium?

December 11, 1997Tim Zurick

Ira Epstein & Company

223 West Jackson, 7th Floor, Chicago, Illinois

Options

Tiger On Spreads
Spreads Trading
Consensus National Futures and Financial On Line Index

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Last updated on 12-12-97

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