| Packers have been able to knock down cattle prices up North bringing them closer to the south. Last week Live prices ranged from 185.00 to 194.00. We’ve seen the Feeder Index fall as futures prices collapsed as cattle buyers pulled back and were able to get cheaper prices. No sales have climbed as sellers balk at low prices. Sellers have elected to keep cattle on grass and wait for markets to settle in and some areas have seen prices settle in and are moving higher. Some expect the index to rebound as previous sales were light and feedlots may have to get more aggressive to buy cattle as we near August expiration. See weekly continuous chart below. We think if feeders rally, they can trade up to and eventually challenge the 8,13, and 21 day moving averages between 253.000 and 255.000 on the September Board. Trade Idea Options Buy the Sep 245.000 call and sell the January 25 254.00 call. Work the order for a collection of 100 points or $500 upon entry minus trade costs and fees. Risk/Reward The risk here is unlimited as one is short a January 2025 option that expires approximately 4 months after the long call expires in late September 2024. We see the possibility and potential that the feeder index returns to where it just came from and well back above the 250.000 level later this Summer and early Fall as scarcity still remains in many areas amid good demand. Its our opinion then September feeders are too undervalued at 245 and could possibly chase the index higher into September. Should that occur, we can cover the option diagonal for 300 points Sep24 over January 25 giving us from entry a 400-point collection using this option diagonal minus trade costs and fees .  |
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| Contact Sean, Vice President, Walsh Commercial Hedging Services Phone: 312-957-8103 or 888-391-7894 Email: [email protected] Contact Benedetto DiCostanzo, Senior Market Strategist Phone: 312-957-4163 or 888-391-7894 Email: [email protected] www.walshtrading.com 311 S. Wacker Dr., Suite 540 Chicago, IL 60606 Fax: 312.256.0109 |
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