Prepared by Commodity Review And Outlook

I've mentioned a number of times that I have had good success with expiring options and reports. Just in case you haven't been giving it much thought, let me give you some prices. Monday the September corn 270 call closed at 7/8, Tuesday 7¾. A 280 call was 1/2 Monday, 4¾ Tuesday. The name of the game in commodities is leverage. At less than $50 per option, this is tremendous leverage with limited risk to boot. The grains and the financials have given me a number of excellent opportunities over the years. It takes very little time to check option prices when expiring near a report, and also very little money. Often they expire worthless, but others are terrific bargains. Check them out. It might pay you to do so.

August 14, 1997M. Steven Morgan

Commodity Review And Outlook

195 Route 6A, Suite 6, Orleans, Massachusetts

Prepared by

Ira Epstein & Company

Inflation Is Dead...Right?

Producer prices are down for the seventh month running. One would think that there is no need for hedging inflation risk by buying precious metals. Yet suspicion remains that the beast lives: real estate prices are jumping in some areas as some investors take stock profits and bid up housing prices. Is the UPS strike an aberration or the beginning of a new cycle of wage-driven inflation? I believe that there is enough uncertainty to warrant purchase of inexpensive, long-term gold calls. April 370 calls are only about $180–very little risk for options that expire in seven months.

Here's a market that's been an inflation laggard–prices remain in the same general area they've been for years. What will light them up? Middle East tensions which are currently worse than normal or maybe an especially severe winter due to El Nino? Here also, the downside looks pretty limited. I'm favoring bull call (vertical) spreads in crude and heating oil for the January/February time frame.

Prices are relatively low and so are stocks. Options remain cheap–too cheap to sell in my opinion. At the risk of sounding repetitious there are a lot of inexpensive calls to choose from.

I believe the currencies may be heading back into a period of explosive potential. Interest rate cutting pressure seems widespread as the industrialized countries jockey to keep their exports competitive. I still find it hard to believe that the European Union is going to fly. Any country opting out of the deal could trash the entire scheme and send the various currencies running for cover. Indicated strategy? Long strangles and straddles away from the money and rolled quarterly are my preference.

In summary, I believe options are an excellent tool to employ in your trading arsenal. They can slow down the entire game and can be used as primary positions themselves or in conjunction with faster-moving futures.

August 14, 1997Tim Zurick

Ira Epstein & Company

223 West Jackson, 7th Floor, Chicago, Illinois

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