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Equities

I have stocks and Mutual Funds that are going through the roof. Is the market due for a correction and should I hedge these positions? This idea isn’t an assured hedge, but it could work if there is a correction or crash in the next month. Sell the June E-mini S&P (ESM7) around 151400 and buy the ESM7 1520 Call for about $800. This option is there for your protection, a safety net. Your risk is approximately $1100 per strategy, the cost of the 1520/call($800)+ 600 points($300). Your potential is unlimited. Hypothetically, let’s say the E-mini S&P retraces 50% from the huge move from the low last summer of 122900. This would be about 137500. This would be a profit of about $5,800 per strategy.

30 Year Bond

There is a CPI Report coming out on Tuesday morning, 5/15. This Inflationary Report could have a huge impact on this market. Nobody knows for sure what the number will be, so nobody knows which way the market will go. I have a strategy that will cover both sides of the market, so there isn't a care which way the market moves, but there is a need for volatility after the report in order to make money on one of the sides. Movement is needed for this strategy to work. The USM7 112/111 Strangle would be a cost and risk of about $420. This means you buy the USM7 112/call and buy the USM7 111/put. The USM7 future is trading around 111-11. The 30 Year Bond tends to move higher this time of year, so I might recommend weighting this to the long side for those who can tolerate additional risk and buy more Calls than Puts.

Grains

I see a Spread in the Wheat vs. Kansas City Wheat (WN7/KWN7) that could have quite a bit of potential with manageable risk. Buy July Kansas City Wheat (KWN7) and sell Chicago Wheat (WN7) around 17 cents premium to WN7. I see resistance around 21 cents premium to WN7, so I see risk of about $250 per spread. I could see potential of about 10 times the risk, a pretty good Reward/Risk ratio. There is a tendency this time of year for this spread to be effective, also. Historically KC Wheat is usually priced about 20 cents +/- over Wheat. This Spread trade is going against the trend.

Sugar

What about placing a GTC buy stop above 967 in October Sugar (SBV7)? There is resistance in SBV7 at 967, a double top. We would be buying above resistance and on strength. I see support at 925, so if filled I would place a protective stop loss below this point. October Sugar has a tendency to stay firm this time of year. The Option premiums look relatively inexpensive. The SBV7 1000/calls are only about $369. The July08 Sugar 1300/calls are only about $235. Do I see a gap to fill around 1400?

10 Year Note

I see the June Ten Year Note (TYM7) has been trading in a channel for about a month between 108-15.5 and 107-22. I would think a bracket might be a good way to enter this market. Place a GTC buy stop above 108-15.5 and place a GTC sell stop below 107-22. Whichever order gets triggered use the other for your protection. Your risk would be about $900 per contract. The TYM7 tends to move higher this time of year. You could just play the long side and place a GTC buy stop above 108-15.5, and if that order gets filled, then place a sell stop below 107-22. I actually like that strategy better. What about buying Call Options for the conservative trader? The September 10/Year Note (TYU7) 110/calls are only $188.

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Grains

Soybeans will head higher as acreage may be below estimates as well as the recent pickup in biodiesel facilities using Soybeans vs. Corn will attract buyers in the coming months. Technical indicators aren’t overly bullish yet, but that is the setup as the summer months start to roll around.

Everyone loves Corn and if the weather has anything to do with it, the longs will benefit even more as the shorts will be running for cover every time they predict a dry spell or a reduction in the acreage allotted for actual consumption vs. ethanol production. Expected direction is up, with those savvy enough to buy selloffs will quickly flip on rallies as volatility will be the king here. Selling premium on options might also be a smart way to go as long as you are covered on the extreme moves.

Metals

Metals are overbought, but particular notice is in the Silver market as traders disappointed with Silvers laggard status compared with Gold and Coppers % gains sit and wait for a major catalyst to spark the next run. With Copper reputed to have large supply coming onto the market, Silver may actually appear to be a safer haven and any pullback could be shallow, setting up a move over $14 sooner than most may think.

Nasdaq and S&P Futures

Nasdaq and S&P futures have held well in May, but Aprils stellar run, coupled with the seasonally expected advance in early May, may lead to the "expected" pullback many have been waiting for to re-establish long positions in big caps that were sold earlier in the year. This "expected" pullback may mask the opportunity to truly sell into a strong rally and allow the market to surprise on the downside, lessening the very high bullish consensus needed to fuel the next leg up.

Cotton

Cotton is starting to look good to me as the world wide demand has been outstripping supply for some time. US exports are not meeting with the demand expected and with the recent pullback in prices, I expect Cotton and all of the fundamental/technical/seasonal variances to keep a floor under the market and allow a broader based move above 55 by August if not sooner. Too few players in the market are talking up Cotton whilst the bigger players seem to want to talk it down. That is a "tell" in my book.

Coffee

Coffee prices on world markets vs. the price we pay "at the pump" seem too out of whack. Does that mean prices we have gotten used to will come down or that prices in the field will be going up? Trend analysis and seasonal tendencies here almost allow for a quiet time of trending and buying on support, as we wait to hear how the weather in Brazil is affecting things as their winter season is approaching. Buy any break above $1.07 July as that would signal the shorts to cover and bring in new longs.