July Wheat Got In My Face

When I first brought up the July Wheat futures chart this morning I said "Whoa!"out loud. Here's what I noticed on the Daily chart:

Double Bottom on 3/16/20 and 5/18/20.
Morning Star like pattern formed by today's candle combined with the last 2 days.
Doji Gap Up between yesterday and today.
Very low stochastics.
Large candle on high volume.
Previous large candles, on this chart looking backwards a couple months, with small wicks usually have continuation in the next few candles.
At the end of the day it seemed likely we'd close above 8ema.

Then I zoomed in on the 10 minute chart:

Here's what I noticed:

Could be forming 3 drive pattern.
Could be forming a cup pattern.

All these observations are bullish. But its a little early to enter a trade with conviction until we see some follow through. But if we don't enter, we could miss a nice gap up and run.

So we got the July Futures 5.20 Call option for 13 7/8  points * $50/pt = $693.75.

For a target, there's a very nice confluence of several possible sources of resistance:

Fib -261.8% from the Purple range.
Fib -61.8% from the Yellow range.
Daily 200sma
Daily 50sma
Daily previous swing high

These all occur at about 528 1/2 (the 50sma is converging on this level). So We entered a conditional order such that when the futures contract reaches 528, we'll sell the option.

The option Delta was about 48% when we bought it, and July Wheat was 514. If we hit our target at 528, then the profit should be at least (528-514)*48%=6.72 points*$50/pt=$336. That would be about a 50% return on the $693.75 option cost.

The most at risk is the full option cost. Chances are very high, if we need to sell the option due to the trade going against us, there will still be a significant residual value. For example, say we sell the option when the futures closes under the 8ema at 504. The reduction in option value would be approximately (514-504)*48%=4.80*$50/pt=$240. So, the Risk:Reward is likely acceptable.