Hi Surjs,

The spread as outlined sounds reasonable as a way to go given your premise ... that seasonally this is the beginning of time frames meal has risen in several of the past few years.

The options ... 190 call and 200 call stayed the same today valued at $615 and 350 respectively for a projected cost of $265. Taking bid/ask into account we understand we'll probably have to pay closer to $300 to get the spread trade executed. So we can reasonably estimate our cost of putting the trade on at $300 plus 2 comissions. Let's say $340. The next thing we need to know is how much can this trade make for us. The dollar vaue of the spread is $1000. But it cost us $340 to put it on so the very best we can make is $1000 minus $340 or $660. So this trade has about a 2:1 RRR. We know the chances of the trade making maximum profit is fairly low. So let's say $400 would be reaaly good. Now we are barely over 1:1 RRR.

We should have a plan for this trade. One of the components should be a promise that we'll not let the value of the spread decrease by more than half or we'll exit. So now our risk is reduced to $150 plus 2 commissions or about $190. Now we are risking $190 to make best case $660 but more reasonablt, $400. We are back to about 2:1. That's an OK trde I believe but nothing to write home about.

Let's then look at the futures contract and the May Chart to see how a hypothetical futures trade compares.

What do we know from looking at the chart? We have a hugely strong resistance area right where we are now ... actually a little bit above us ... at 184.70 to 185.70 roughly is the range as I see it. We can also see huge resistance up at 2.04. My view of the chart, I'd be willing to buy this guy as it broke above 185. The upper end of the range are all wickes denoting failures to go higher are they not? Good then, let's say we be willing to buy the break above 185.00. It makes sense to place our stop at 184.30 since 184.70/85.70 is so strong ... arguably it is THEE strongest S&R area on the chart, no? We now have our entry and our stop. We need a target ... 2.04, right? So we can now compute the risk ... the difference in dollars between the entry and the stop ... at about $100 plus 1 commission or $120 if we assume we can see the break above 185.00 and get a fill by 185.30 which is reasonable.

The dollar value of the move from entry to target is our profit potential or reward and that is $1870. We have about an 18:1 RRR. Looks to me like I could enter this trade or a variation of it 4 times and still have a better proposition than the option trade. And imagine if we played it extremely tight and put our stop at 184.7 what the numbers would look like.

In favor of the option trade is that it does not require as much mangement time and effort as does the futures trade. Also in favor of the option is the maximum risk is absolutely set at $340 no matter what the market does. We could theoretically loss much more on the futures trade if our stop was blown by a big move to the downside. But clearly the futures trade has the more appealing numbers and RRR dynamic.

Having gone thru this exercise, which is something you should do whenever you consider options as an alternative to a futures trade, you can make your decision either way and understand all the elements of your choice. It isn't that one is better than the other or one is right and one is wrong. It is more a matter of understanding the plusses ans sminuses of each so you can make a fully informed decision.

Make some sense?