Here's another eccentric set-up. Cotton has been range-bound for what seems like months--83.00 to 86.00. Historically cotton's range is between 60 and 90 cents. The recent clustering around 85 has put everyone to sleep. This last blip up was supposedly due to a heat issue in China. Once again, low volatility combined with an anomalous spike made the puts interesting. This trade will have some time to play out in many possible ways that I'll address as they come up. (Options have about a million strategies, especially combining them with the underlying futures).

Thursday I put on 5-85.00 Dec puts @ 2.28 points, $1140 each. My first thought was to leg into a vertical spread, selling the 80.00 or 78.00 puts to reduce my exposure. The 80's were about 97 tics, about $500, lessening my cost to $600. The max profit potential is $2500, risking $600. TIME is the key element here. I chose not to spread yet, to see how the market would respond to the China story and to the upcoming crop progress report. In this case I think we may see a "buy the rumor, sell the news" reaction.

An old rule is--"the longer the base, the bigger the move". I'm gonna hang fire on the second half of the plan til I see some movement. It wouldn't surprise me to see a post-harvest drop into the 70's. I'm already developing contingency plans to deal with that possibility. I will go to straight futures if there is a decent break below the 85 cluster, in addition to the options. (And I will buy calls to protect the futures, too. Besides, properly placed, they reduce not only risk, but they lower margins, enabling larger size positions.)

Of course, that's just my opinion. I could be wrong

Stomper