2008 Trade Of The Year
by Larry Pesavento
Each year for the past 10 years I have issued a Trade of the Year. Eight of those 10 trades were "homeruns." For example, buying Crude Oil at $11.00 per barrel, buying the Euro at $85.00 and buying Soybeans at $4.30 a bushel. The two losers were actually break even trades and the market went nowhere.
This years Trade of the Year is going to be in the Soybean market. Enclosed you will have a long term monthly chart of Soybeans showing the old high at $12.90 per bushel. We currently hit $12.73 as of Friday. Unfortunately, my computer skills do not allow me to draw in the patterns on this long term chart that I would like but those of you that know the patterns will see it if you look closely. The expansion highs of the years 1976, 1979, 1988, 1996, 2004 and 2008 were exact 1.27 expansions of previous years highs. Each of the times Soybeans have reached above $10.00 a bushel they have dropped in half to $5.00 a bushel. Now we have the potential for a massive double top. The strategy I suggest is to buy the July $12.00 per bushel puts (cost approximately $2500.00 or the $11.00 put cost approximately $1200.00) You should be willing to risk the whole premium on this trade so it is not for the faint of heart. The potential on this trade is a minimum of 6 to 1.
It was very difficult to pick a Trade of the Year because there were 2 others that were strong candidates. Short Euro and short Gold. Because of the high correlation of the Euro and Gold I would've been only been able to pick one of the two. From the historical chart and Soybeans ability to go back to lower levels quite frequently, the soybean trade was selected.
Click The Image To See Full Size
