'til Human Voices Wake Us. Everything has gone to hell on roller skates. OJ is at all-time record highs. So do I give up on commodity trading? Shoot myself? My broker? No. This is neither the first nor the last time I've come to grief. There can be no gain without risk, and sometimes what you risk happening happens. So I take a page from both Kipling and Sinatra, pick myself up, brush myself off, and start all over again. Mean time, I have 85 days for the price of OJ to go down, but in the interim, that's not how I'm paying for groceries. One thing I have gained, though, besides newfound respect for the Lawrence Welk formation that I should have waited for, is a spreadsheet. I designed it to track options by the usual stuff, such as Delta and Gamma numbers, Black-Scholes theoreticals and implied volitility of out-of-the-money options. I also trace on a daily basis the volume of options traded and the open interests in each option (both the one I bought and the one above and below, and the call options of the same strike prices). This is worth watching just to understand how markets work and learn how to trade better next time. That's one thing that Kipling and Sinatra forgot to mention: If all you do is pick yourself up and start all over again without learning anything, you may be a man my son, but not a very smart one, and unlikely to improve your luck, either.

Like air to a drowning man. July OJ dropped 1.15 today, reviving my hopes for a brief downturn lasting a couple of weeks and extending about 20 cents. I still might drown, but at least for now, my hope can breath.

When Commodity Trades Go Wrong. My most recent has. I hoped that OJ would plummet, and had what I thought were good reasons for my belief. Until last Thursday, it looked like I might be justified. On Friday, however, July Orange Juice hit a high of 137.2. Luckily, I did not go short on the commodity itself. Instead, I purchased a put option with a strike price of 120. This made great sense when the price was hovering around 130. It might still be a worthwhile position, should the short trend reversal materialize in the next 80 some-odd days. I thought that reversal was imminent when I purchased the option, but now it is merely possible. Had I gone short on the commodity itself, however, I would either have hit my stop and exited by now--permanently losing any hope of recovering the hundreds of dollars lost--or faced a margin call, losing more money than I even wanted to invest. Moral of the story: Enter a position tentatively; i.e., with options. If the market goes your way, you can either exercise your option or sell it to someone else at a profit. If you guessed wrong, all you stand to lose is the price of the option. Spend a little extra and buy the longer term options. That will give you more time to be right.

Studiously Stupid News. I just answered a poll on aol in which I was asked how likely it was that civil war would break out in Iraq. This is in apelike mimickry of an earlier poll taken by the "driveby media" in which it was established that "a majority of Americans" believe that civil war will break out in Iraq. Both the ostensibly scientific poll and the aol poll, of course, have an obvious flaw: They didn't ask anyone in Iraq. It is not up to American opinion, except indirectly to the extent that American politicians will make statements to help themselves during the upcoming mid-term election. Those statements will make their way into Iraqi, Turkish, Jordanian, Syrian and Iranian ears, but I doubt they will convince anyone not already actively trying to foment civil war in Iraq to do so, nor anyone determined to do their part to hold the troubled country together to quit and let all hell break loose. The very hopeful tone of some news anchor hairdos as they cite this piece of non-news is nauseating. But today, they topped themselves. I heard a female hairdo exclaim breathlessly that "a great many people believe that Iraq is on the brink of a civil war!" She neglected to mention that none of those "great many people" polled actually reside in Iraq. She thereby crossed the line that separates mere stupidity from outright dishonesty, and several hours later, I couldn't get the comment out of my head.
A great many citizens of the People's Republic of China believe that the United States are on the brink of a civil war. I happen to be inclined to agree with them, which is why I wrote a novel based on that premise. But whether or not we have another civil war here is not up to the Chicoms. We've been on the brink a few times, most notably during the administrations of George Washington, Thomas Jefferson, James Buchanan, Andrew Johnson, Rutherford B. Hayes, Lyndon Johnson, Richard Nixon and Bill Clinton, not to mention George W. Bush. But we only crossed over into actual combat once, during Abraham Lincoln's ill-starred presidency. A combination of habit, sensible men in the right places at the right times, and fate saved us from fratricide all the other times. Both England and China are older nations than we, and they both have had more numerous, longer and bloodier civil wars than our paltry one in 230 years. People of good will with a modicum of intelligence ought to hope that Iraq should be similarly blessed. So are these talking TV hairdos actually people of ill will who wish for mass slaughter and death in far away countries so long as it discredits President Dubya? Or are they merely stupid? How about we poll some Iraqis and find out.

My Future in Futures. Last year around January, I invested $600 and change in a July soybean oil call option. As the experts had predicted, the price of soybean oil went up on the Chicago Board of Trade exchange, and I reaped a double profit, one for the option I bought that became "in the money," and one for the option at a higher strike price that I sold to some hapless fool, which expired "out of the money," which in trader-ese means worthless. My $600 investment grew to over $2,000 in just a couple of months' time. Then I was left with a quandry, what to trade next, so I can do that again? My broker, Larry Griggs of Basic Commodities, which is affiliated in some way with ADMIS in Chicago, was a wise and patient man, and tried very hard to keep me from destroying this little windfall. Unfortunately for me, I was neither wise nor patient, and had wax in my ears. With only $328 left in my commodities margin account, and duly chastened, I let trading alone until I had enough money to risk some of it, and in the mean time studied up on my new passion, commodities.

So with a few hundred dollars to spare, I've bought a put option on July OJ at a strike price of 120, which cost me $375 plus commission. Had I waited a week or two, I could have gotten the 125 strike price at the same cost, but by then my wife would have demanded the money for groceries. You see, July OJ is still going up, but it's meeting resistance. Every day, I watch it trade lower than the day before, only to rally at the last minute and trade slightly higher. I've bet on its price heading unequivocally downward soon, and since I bet against the odds, I didn't have to pay much for it.

So why do I think orange juice is headed back down? What about the crop damage in Florida after two years of hurricanes? What about the leaf canker assaulting the trees? For one thing, Florida orange juice is being badly undersold by Brazilian orange juice, which is picked, processed and shipped more cheaply and in greater abundance. Florida controls only 34% of the world OJ market, while Brazil controls 53%. We have protective tariffs against Brazilian orange juice reaching our shores, but Europe, Canada and Japan do not, so what Florida orange juice there is after the hurricanes and the canker cannot compete abroad. As a result, the amount of orange juice currently in cold storage in the United States has risen slightly from December 31 to January 31, and is likely to go up even higher as the Florida March harvest gets underway, unmarred by winter frost.

As a result, FOJC (Frozen Orange Juice Concentrate futures) has inverted months. That means that the May futures contract is trading for more than the July futures contract, which is trading for more than the September futures contract, which trades for more than the November futures contract. Normally, the later contracts are trading higher, because the cost of storing a commodity goes up with the passage of time. The last time FOJC had inverted contracts was in mid-December, and it headed down then, too. Sugar is presently in a downtrend, and it has inverted months.

In addition, if you look at an orange juice chart (a good website for commodity charts is http://www.tfc-charts.com/, and if you want to see the July OJ chart, you can either click through the menus until you find it, or try http://www.tfc-charts.com/chart/OJ/76), you will notice that the price of orange juice, while it was trending upward, regularly went into brief periods of resistance, when the price refused to go any higher and sank a little, followed by a period of support, when the price refused to sink any further. So long as the upward trend was nice and agressive, you could draw a line on the chart between the bottom of the support periods, and that line would either go straight up at the same angle, or go straight up at a steeper angle, which means that the trend is strengthening. This is known as the ascending line of support. When the line goes up at a more gradual angle, that means that the trend is weakening. The present period of support has crossed the ascending line and is still going flat, which means that the trend has either weakened or is about to reverse.

I'm betting that the trend will reverse at least temporarily, both because of the inverted months, and because Brazilian orange juice is undercutting Florida orange juice on the global market, and because the Florida crop has suffered no frost damage. If I win my bet, I'll be able to face Larry Griggs and plunk down a thousand dollars or more for further trading, only this time, if not yet patient at least wiser, I'll listen to him.