Live Cattle Option Strategy

Peter Ori General Commentary Leave a Comment

It appears that Funds bought Cattle this year because long open interest has increased, a solid base may have formed in Feb Cattle above $119.00 and $120.00 last at $122.27, weather conditions are favorable although wet. Cash has held steady while futures have taken some profits and open interest would indicate that some futures contracts spreading out of December into February.  I think Live Cattle will hold firm to year end and strengthen into next year to $127.00/128.00 area, as supply tightens from year end demand. Looking at Calls to be Long the February contract, which expires 2/01/19 in 94 days. Buy the Feb 126 Call pay 2.225 = $890.00 of quantitative risk or the 127 Call pay 1.875 = $750.00 of risk and if there was a greater demand scenario, the 128 Call pay 1.45 = $ 580.00 of quantitative risk, looking for a rally to $130.00. For downside protection from a bearish market shift scenario, Feb Cattle Puts to consider are the 119 Put pay 2.25 = $900.00 of risk or the 118 Put pay 1.95 = $780.00 of quantifiable risk. What you are paying in premium is what you are willing to risk for the above trades plus fees and associated costs per transaction.

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