Strategy Recommendation, get a foot into OJ

The DeCarley Perspective

On the radar:

The OJ market appears to be putting in a triple bottom and seasonals call for a reversal. Let's buy calls to get a foot in the door.



BUY JANUARY ORANGE JUICE 1.10 CALL

Orange juice is on the cheap side and appears to be putting in a triple bottom. Although entering the market here might be moderately premature, this is the type of market that reverses quickly leaving those who weren't in at the turn chasing prices higher.

Technical oscillators such as RSI and Williams %R are showing moderate signs of a potential reversal, but aren't completely oversold as we generally like to see. For this reason, we believe this is a time to nibble on bullish trades rather than get aggressive.

According to the 15-year seasonal stats in orange juice futures, the seasonal low generally occurs in late September, but if you look at the 30-year data the bottom is due well into October. In any case, the odds are OJ will eventually trade higher in the coming months. The seasonal rally generally runs through mid-December which is about the time the January options expire. Thus, we like the idea of buying January OJ calls in hopes of a sharp recovery.

Specifically, the January 1.10 calls can be purchased for about 2.50 in premium or $375. This represents the maximum risk of loss. The profit potential is theoretically unlimited, but we would be happy with a rough doubling to tripling of premium. Keep in mind, we see trendline resistance near 1.10, so a move to that level should result in a profitable venture as long as the move occurs well before expiration but if it takes until December to get there the option will lose time value to produce a loss. If we are lucky, the market will break above 1.10, if so a quick run to 1.20 is possible.

Margin: 0

Delta: .29

Zaner360 symbol is: OOJ-MF20 C1.1