Sugar #11 Daily Market Report

All material herein, including the summarized Terms and conditions of the transaction is for discussion purposes only.

Tuesday, 06 November 2007

Month Closing Price Change Implied Vol Skew Up Skew Down Historical Vol Daily move from Implied Vol Daily move from Historical Vol
H8 K8 N8 V8

10.05 10.23 10.24 10.62

0.15 0.13 0.11 0.10

21.12% 19.72% 18.91% 18.82%

0.40% 0.35% 0.30% 0.30%

0.40% 0.35% 0.30% 0.30%

15.45% 13.42% 12.06% 10.03%

0.13 0.13 0.12 0.13

0.10 0.09 0.08 0.07

Notes: Skew up and down is for strikes +/- .5 strikes only. Historical Vol is calculated as the 20-day historical vol Calculation for average daily move is = Vol x Price / sqrt (252)

Numbers on Futures Today's Volume (As of 1 pm) Previous Days AA/EFS Mar 08 1,732 May 08 7 July 08 6 Oct 08 106 42,487 lots (9,855 pit, 32,623 ICE) 68,719 lots (3,641 pit, 65,078 ICE) March Trading Range Total Open Interest (Change) 9.99-10.08 (9 points) 760,932 11,359

London Whites Premium Z7/H8 54.50/55.25 H8/H8 62.00/63.00

Futures Spread (end of day values): Mar8/ May8 -19/-17 May8/ Jul -1/0 Jul8/ Oct8 -39/-37 Oct8/ Mar9 -61/-58 Mar9/ May9 -16/-13

Eye on Options Macquarie bought 600 H 10p at 40. Settled at 40 on 21.15% IV. Macquarie bought 400 H 11c vs. futures at 10.00. Settled at 15 on 22.84% IV. J.P. Morgan sold 2000 H 11c vs. futures at 10.00. Settled at 15 on 22.84% IV. East Coast sold 500 H 10.5p at 71. Settled at 70 on 21.52% IV. J&H sold 500 K 10p at 40. Settled at 41 on 19.84% IV. J&H bought 300 H 10 straddles at 84. Settled at 85 on 21.17% IV. Calls 8,553 16,062 Puts 4,413 15,519 OFS 0 175 Volatility Matrix
Month H8 K8 N8 V8 H9 Settlement 10.05 10.23 10.24 10.62 11.21 Change in futures 0.15 0.13 0.11 0.10 0.08 Historical Volatility 15.59% 13.42% 12.06% 10.03% 10.07% Implied Volatility 21.17% 19.72% 18.91% 18.82% 19.92% Previous 20.89% 19.26% 18.81% 18.36% 19.80% Change 0.28% 0.46% 0.10% 0.46% 0.12% Straddle Settlement 10.00 10.00 10.00 10.00 10.50 85 104 117 146 192

Todays Volume (est.) Previous Day

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My Spin March Sugar #11 settled up 15 points at 10.05 cents per pound on strong buying spurred on by record highs in Crude Oil and the CRB Index, as well as a weakening US dollar. The market opened 10 higher on fund buying, but found trade and local sellers all too willing to take profits at those levels. March briefly got below 10.00 in the mid-morning but found new life late in the day settling at 10.05. Todays electronic session closed at 10.07 (3:15 EST), trading as high as 10.11 on the ICE screen. Volume was light at 42,000 lots and the rally was not all that urgent. The situation remains the same, with funds and specs buying based on the strength of Crude and other commodities, yet current cane crush, harvest, and acreage numbers for 2008 seem bearish. We are starting to see a discrepancy between the 2008 and 2009 contracts based on Indian acreage conversion (to more wheat) and increased Brazilian ethanol demand affecting the latter. The bulls needed this settlement, and further probes to 10.25 are expected if Crude continues its run to $100 a barrel. March finds support at 9.99, 9.97-9.96, 9.95, 9.93 and 9.90 cents, with resistance at 10.08, 10.10, 10.12, 10.15 and 10.17 cents. In the options pit volatility was unchanged on light volume of 13k option contracts. March at the money implied vol remained at 21% with the 10 straddle going out with a market of 84-86. All of the other contract and back months were unchanged as well. Well the options market took a breather today as most players seemed disinterested with only a 9 point intraday range. We did open up 15 points higher making yet another case for owning gamma/vol at these levels. The trade of the day was one brokerage firm selling over 2k March 11 calls at 14 and 15 tied to futures at 10.00 at around 22% to 22.50% effectively bringing the skew in. Ironically, yesterday the same brokerage firm bought the same calls with futures at 9.90 at 14 and 15 points (24.50%) aggressively forcing the skew out. Go figure? You could have scratched the options and made 10 points on your futures. Sounds like a good trade to me. We saw firm bids in the H 10 straddle all day at around 20% vol but going into the close paper bid up the straddle to around 21% (84 points). With the absence of aggressive put selling which we have witnessed over the last couple of months vol seems to have found its comfort zone between 19-21%. Keep an eye on the upside skew as another day of aggressive selling could force the skew in further creating a good opportunity to put fences and call spreads on for close to flat vol. For instance, H 10 straddle got bid up to 21% while the H 11 calls got sold down to 22%. Selling a call vertical with only 1 vol tick difference between the 10 and the 11 strikes seems like a no brainer. March 2008

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Regards, Joshua Goldfarb / Jason Wendland Macquarie Futures USA Inc. Floor Access Line: 212-748-3200 Mobile: 917-733-6785, 201-725-4309 Email: Joshua.Goldfarb@Macquarie.com, Jason.Wendland@gmail.com Yahoo, AOL, and MSN Messenger: macquariefloor

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