Long-Term Options Plays for Bullish 2008
By Richard Ilczyszyn and Phil Streible ISSUE 612 | DEC 2007
It's been a banner year for commodities, and we've seen historic moves in markets like crude oil, gold and grains. We think 2008 will continue to be bullish for many commodities, and are recommending long-term options trades in three markets we like right now—crude oil, gold and sugar.
Fears about inflation and a recovery in the U.S. dollar have caused many commodities to pull back in recent days, but we think these moves are short-term corrective ones within the overall trend.
There has been talk crude oil may lose some of last year's momentum if the U.S. economy slips into recession. However, we don't see that as highly likely at this point, and we see higher prices here to stay in crude oil. Given the global outlook, it's more likely we'll see crude oil at $100 a barrel in 2008, rather than back where we started this year at $50. We recommend buying the July 91.50 call, and selling the July 94 call, which would cost approximately $850 minus commissions. Your net profit would be $1,650 minus commissions if crude oil is above $94 at expiration. This option expires June 17, 2007, so you have lots of time for the market to move in 2008.
COMEX February gold futures are currently hovering near $800 an ounce, off their yearly highs. However, this correction should prove a good buying opportunity, and we see gold surging again next year, even above $1,000. We recommend a long-term options trade, buying December 2008 850 calls, and selling December 2008 900 calls. This trade would cost about $1,500 plus commissions, with your maximum profit defined at $3,500 minus commissions. This trade will be successful if gold is above $900 at expiration, on November 20, 2008.
Sugar has been on the move recently, gaining about 14 percent since late November. Sugar futures have broken above July's peak, and haven't looked back, with the March contract trading above 11 cents pound this morning at ICE Futures U.S. We remain bullish and are recommending long positions in the October 2008 contract (as well as March) and our next target is 12 cents. There has been speculation that the recent U.S. legislation signed by President Bush promoting greater use of ethanol is spurring sugar, which can be used for the fuel in addition to corn. Some analysts are expecting global demand will increase, and there have been reports suggesting that the Dow Jones AIG Commodity Index will likely raise sugar's weighting for next year, attracting more fund interest in the market.
For more details on trading strategies to meet your particular needs in these or other markets, please feel free to contact us. Ask about our special 50 percent off commission offer for new clients.
Richard Ilczyszyn is a Senior Market Strategist with Lind Plus, Lind-Waldock's broker-assisted division. He can be reached at 800-605-0095 or via email at rilczyszyn@lind-waldock.com.
Phillip Streible is a Senior Market Strategist with Lind Plus, Lind-Waldock's broker-assisted division. He can be reached at 800-803-8037 or via email at pstreible@lind-waldock.com.
Kristina Zurla Landgraf is editor of Lind eWire. She can be reached by email at editor@lind-waldock.com.
Futures trading involves substantial risk of loss and is not suitable for all investors.
Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.
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