Selling September call spreads on S&P Futures

The major indexes are all rallying this morning. The S&P September futures are up 20 points to 1302. The rally is being helped by lower oil prices due to Hurricane Gustav not causing as much damage as what was expected in the Gulf region of the United States. We feel that this is a relief rally, and recommend selling the September 1360-1380 call spread for 1.4 points, or $350 less commission and fees. This spread is over 4% away from where the market is trading today. Although it looks like we are in an uptrend, we do not feel the market will reach 1360 by option expiration which is September 19, 2008.

Margin on the position is approximately $3500. Maximum risk is if the market goes above 1380 by expiration. Maximum risk is 20 points (1380-1360=20 less premium collected 1.4) =18.6 points plus commission and fees. We would look to close out the position if it went against us with a $500 stop loss, plus commission and fees. Return on risk would be over 7% less commission and fees within 17 days if options expire worthless.

The Federal Reserve has its FOMC meeting on monetary policy and interest rates September 16, 2008. We would look to close out these positions prior to the meeting.

To discuss setting up a monthly S&P Income generating program for you, give us a call.
908-787-2089
Stephen Zielinski
Mercury Capital Management, LLC
Website http://www.mercury-capital-management.com/
There is a risk of loss trading futures and options. Past performance does not necessarily indicate future results. Trade with risk capital only. Commodity trading is not appropriate for all investors. This recommendation is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. Futures and options trading involve risk. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. In no event should the content of this market letter be construed as an express or an implied promise, guarantee or implication by or from Mercury Capital Management that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance.