THE COUNTDOWN IS ON! THE BIG NEWS IS ON THE WAY! CHECK BACK OVER THE WEEKEND FOR FULL DETAILS!

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So as i drink my morning coffee and prepare to fly out with my family to Chicago I am reading through hundreds of reader email and I came across this one. Boy I would be as rich as Bill Gates if i charged a dime for each, “just one more question” lol

No truthfully I love it.

I really enjoy helping subscribers when I can.

So when I get an email like the one I got today I feel compelled to answer it since I love to trade and I love helping people… Read On… Best, Kevin

—–Original Message—–
From: Andee
Sent: Friday, August 01, 2008 4:35 PM
To: RTA Kevin Kerr
Subject: Revised question

What is the difference between all these numbers: for example 1250, 1500, 1700, 1800 in commodities?
When I’ve reviewed your online portfolio and alerts, you’ve chosen sugar calls that are between 12 and 18. When I review option quotes, 9 thru 20 are available. If we chose the example of corn, you picked a 520/580 call, in a field that expands from 140 thru 1000. Or in OJ, you pick a 160, in a field of 80 thru 250.

1) What are these numbers?
These are the strike prices. They are a range of prices you can choose from that the underlying commodity futures may or may not trade. Every commodity is different in which “strike prices” they offer and months they trade, pricing can often be different too. The best way is to check the contract specifications for the particular commodity.

2) Are some of these contract numbers more commonly traded than others?
Yes, usually strikes that are closer to where the underlying futures are at trade more, not always though. For exmaple if gold futures are trading at $900 and you look at the $910 calls or $890 puts they will likely have much more activity than the $1500 calls or $600 puts, simply because there is more chance of those prices actually trading. A deep “out of the money” or call would be to buy a $1500 call, it is a long way off, at least for now. Does that make sense? A deep in the money call would be say if you bought the $800 calls, since gold is at $900 those calls already have intrinsic value, that is a deep int he money call where a $1500 call would be deeply out of the money, far away in other words. The more an option (put or call) is in the money the more it is worth, or the more you will pay depending on how you look at it.

3) Would some contract numbers show a more profit margin than others?
Well yes as I describeed above, you are going to have to plunk down a lot more equity for an in the or “at the money” (in other words the strike price is exactly the same as the underlying price at the moment) Now if you bought a deeply out of the money option, say gold calls and tommorrow we wake up and find out gold is at $1300 your $1500 calls would have gained a ton of premium and at the same time you would only have invested a little…SO clearly your profit margin will be huge. Problem is those major moves often do not occur , although lately they have become the norm which is why trading options has been so lucrative.

4) Is this a median between the lowest and the highest? I am not sure I understand the question, the median I guess would be wherever the futures prices are currently trading. If gold is at $900 then an “at the money options would be the 900 strike price for both puts and calls.

If you entered a trade as a spread, do you always have to sell it as the same package or can you just sell the short end of the trade instead of the whole thing? Let’s use the example of the Dec 08 1000/1050 Gold spread. Could I have just sold the short 1050 call and still held onto the long 1000 call? I’ve never seen anything written on it so I’m assuming you can’t, but I don’t know why? Yes actually you can but it gets complicated.

Let me try and simplify it. When you buy a spread all you are doing is basically funding the purchase of an option with the sale of another. In this case you bought the 1000 call and sold the 1050, it limits your initial outlay of premium ($) but it also caps the profit potential to, it tops out at the maximum for the spread, in this case I think $5000 but don’t quote me on that. Now spreads are traded in two ways, “outright” and by “legging”, for the sake of RTA I assume everyone is trading the spreads as outright as legging can get messy.

Outright is done just as it sounds, the spread is traded as it’s own entity both options at the same time. Legging means that you are doing one option at a time. If say you wanted to buy back the 1050 call (not sell it because you are already short the 1050, so you have to buy it back. Once you do that then you would take a profit on the short leg (1050 call) and now just be long the 1000 call for a loss, make sense.

It is a good strategy, especially if you think gold will then rally again at some point, just make sure you know exacgtly what you are doing to cove the legs of the spread and evaluate all costs associated with doing it. But yes to answer your question, yes you can.

I’m sorry for my depth of ignorance and any insight you can toss my way will be greatly appreciated.

Thanks, AnneD

There are no bad questions and if I don’t have the answer I am the first to admit it and I will find you the answer, that’s my job. Most of all don’t get frustrated, this stuff is very easy and I suggest getting a copy of my book as I outline a lot of this in very simple language in my book. Best, Kevin

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I discussed drilling in the arctic circle with Glenn Beck while I was in Vancouver recently….

And the DRILL, DRILL, DRILL argument continues to be front and center at my old friend Larry Kudlows show…


And last but not least i stopped by and visited the folks at CNBC Power lunch to discuss what else? Oil Prices….



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Well the about face in the oil market yesterday may have caught some by surprise, but not me. I have been pretty vocal that I bought crude oil puts at around 145, should have been a great trade, but alas I ended up losing around $400 per contract on it… How does that happen?

Easy, the puts were short dated and that means they expire really soon…Even though the crude oil tanked my puts picked up very little premium, tick-tock tick-tock, this is why the vast majority of investors lose money buying options. It is not always enough to be right about a markets direction, you also have to be right about in what time frame it will happen. Oh, so you thought this was easy did you? lol Oh well, it was a good trade but it ended up losing so as you know I always share the bad with the good and in this case it reinforces my strong belief that time value is key to options success. The trick is paying as little premium as possible when doing so. Just used that strategy with 2009 sugar yesterday.

Well it’s already been a wild week and the biggest numbers are yet to come. The markets got a wake up call today as oil shot back up, the draw in gasoline supplies is a clear indication that demand destruction is not having much if any impact. I expect crude oil could fall further but will not hold these lower levels. The fact remains that we simply have more demand and less supply and that means prices will go back up, and even much higher.

Gold is another market that l think is presenting us with another great buying opportunity, again it may pull back further but not as much as some bears think. The other shoe is going to drop for the dollar by the end of 2008 and gold will once again be the flight to quality choice. Gold $1200 by early 2009, but we may easily get a test of $875 before.

Hey catch my interview here with Howe Street in Vancouver and my old friend Tom Jefferies.

http://www.howestreet.com/index.php?pl=/goldradio/index.php/mediaplayer/915

Also you can watch my interview with CNBC’s Power Lunch on oil yesterday, here, just copy and paste the link.

http://www.cnbc.com/id/15840232?video=808122447

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A nice chat with Tom Crone in Vancouver, listen to the interview from today, right here!

http://www.howestreet.com/index.php?pl=/goldradio/index.php/mediaplayer/915

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Well I always promise to live updates form the conference in Vancouver but time always catches up with me. From morning until night it seems the conference is non stop, and it’s fantastic. I meet people from all over the world and this year was no exception. I was lucky enough to speak with readers from almost everywhere. I heard some of the finest financial speakers here too.

Another fine Vancouver conference indeed.

Often when i travel I find the insight I gain is invaluable, this trip certainly provided that. As we head into late summer now I have about 5 new trades I want to add to my portfolio. I am so glad to be seeing the pullback we are getting in many of the commodities because it will make entry at my targets that much better. Stay tuned big news and big trades coming shortly.

Now while I was in Vancouver I talked with BNN, CNN (Glen Beck) and Fox Business. All about oil, the CFTC accusations and commodities in general. Check out the BNN interview here.

http://watch.bnn.ca/trading-day/july-2008/trading-day-july-24-2008/#clip69243

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Hello all from sunny yet cool Vancouver. I can tell you that this conference is the best yet and i have been coming her for going on 5 years. Great crowd, great speakers and very interesting vendors, best of all RTA members and Reserve members are here too. I can’t tell you how great it made me feel to have member after member coming up to me and expressing their gratitude, just an amazing feeling indeed.

I was talking with one young guy about my regulatory situation and he had been through the same thing, when suddenly a subscriber walked up and said “I have just two words for you, Thank You” and he walked away after shaking my hand, what I wanted to say is ”
Thank You, for giving me the chance to serve and let’s hope the gains continue and at the same time have fun trading.

I will keep tonights comments short because i speak early in the morning, but be sure to check back as I will have photos and video tomorrow. For all of you who are here make sure you come up and say hi, you’re a big reason why I am here. All the best, Kevin

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I got to sit down with Maria B on Closing Bell to discuss the Saudi’s blaming speculator’s…Be serious!

And here I am on Larry Kudlow from Vegas, I called the time to sell oil, at least short term. I own 100 puts right now, I always put my money where my mouth is. Look at the bottom of the screen where oil was when i suggested it, now look at it today.

Ok I am off to Vancouver and the Agora Conference…Be sure to check back here daily for video, photos and comments from the event….Travel safe if you are coming and see you there.

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Well sorry for the delay in posting but I was at FreedomFest in Vegas and simply got caught up. Meanwhile in case you have been asleep, the dollar is crashing to new lows as gold seems to make new highs everyday… The failure of IndymacBank just underscores the depth of the crisis. Gold is a safe haven for a reason. How many times have you seen people lining up to get their gold out of a vault, not many.
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Meanwhile good news over in the world of sugar….

As many of you follow me know Ia m keen on sugar and now we have even more reasons to smile….Read on,

India’s Sugar Output May Decline 25%, Boosting Prices (Update2)

By Thomas Kutty Abraham
Enlarge Image/Details

July 15 (Bloomberg) — India’s sugar output, the second- biggest in the world, may fall as much as 25 percent next year, sparking the steepest jump in prices since March.

Production may decline to 20 million metric tons in the year ending September, 2009, Vinay Kumar, managing director of the National Federation of Cooperative Sugar Factories Ltd., said in New Delhi. That’s less than the 22 million tons forecast by the London-based International Sugar Organization this month.

Lower output may support raw sugar prices that have risen 26 percent this year as record oil costs boost demand for biofuels including ethanol made from cane. Farmers in India are growing corn, rice and soybeans instead of sugar after the commodities jumped to their highest this year, Kumar said.

“Sugar prices will rise further as India’s production falls and demand rises during the festival season” starting in September, said Amol Tilak, an analyst at Kotak Commodity Services Ltd. in Mumbai. “If oil reaches $150 a barrel, prices will rise faster.”

A smaller crop may halve India’s exports to 2 million tons, Kumar said. The National Federation of sugar mills produces almost half of India’s output of the sweetener.

Sugar for August delivery on India’s National Commodity & Derivatives Exchange rose as much as 3.3 percent to 1,615 rupees per 100 kilograms, the most since March 5. The contract traded at 1,603 rupees at 1:25 p.m. in Mumbai.

Raw sugar futures traded on ICE Futures U.S., the former New York Board of Trade, gained as much as 1 percent to 13.73 cents a pound in the after-hours trading. Prices declined 2.9 percent yesterday. The most-active contract closed at a 25-year high of 19.3 cents a pound on Feb. 3, 2006.

Exceeding Demand

Global refined sugar production will probably exceed demand by 2 million tons in the 12 months through March, according to Lausanne, Switzerland-based researcher Kingsman SA estimates.

Indian cane growers planted the crop across 4.31 million hectares (10.7 million acres) by July 11, 19 percent less than a year earlier, the farm ministry said last week. In comparison, area under rice expanded 6 percent to 9.23 million hectares and soybeans were planted in 23 percent more area from a year ago.

Corn climbed to a record $7.9925 a bushel on June 27 while soybeans reached $16.3675, their highest ever, on July 3 after the U.S. farmers planted less area to the crop. Crude oil almost doubled in the past year to $147.27 a barrel on July 11.

Refined sugar output in the eight months ended June was 25.8 million tons, down from 27.8 million tons a year earlier, the federation’s Kumar said. Harvests in the western state of Maharashtra were delayed because of rain, and mills in northern Uttar Pradesh refused to process the crop because of a price dispute with the state government, he said.

Discourage Exports

“We will continue to export sugar next year though the quantity will not be the same,” Kumar said. “Removal of export incentives and better domestic prices may discourage exports.”

India’s government will end a freight subsidy of as much as 1,450 rupees ($34) a ton on Sept. 30, reducing exporters’ ability to compete with Brazilian and Thai suppliers.

The South Asian nation may have a stockpile of 12 million tons in the new crop year beginning Oct. 1 and local demand may total 22 million tons, Kumar said.

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As many of my loyal followers know, I like straight talk. It’s funny. I wokr with many very intelligent people, and living in NY I meet many famous rich and (supposedly) cutting edge folks. The fact is that often their intellectual discussion of how to solve the energy emergency is the reason we are in it.

Have you ever seen the Royal Bank of Scotland Ad’s on TV? How creative.. “Less Talk….More Do!”

Amen!

T-Boone Pickens, the big oil man, is one of my heros. Like Buffet is to many stock guys T-Boone is to many of us in commodites. I have to tell you that his straightforward honest approach is refreshing, as I try to be. Anyway, i briefly discussed T-Boone’s latest idea of wind farms and natural gas with my old friend Larry Kudlow.

Just copy and paste this link in your browser:http://www.cnbc.com/id/15840232?video=788967697

I am off to Vegas for FreedomFest, hope you stop by!

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