Lean Hogs have gotten just hammered recently with tariff and trade war fears on top of already weak fundamentals, but the fall may be a bit of an overreaction into oversold territories. Maybe it’s not and more tariffs or supply fundamentals could have it fall further. April hogs are trading at a large discount to the cash market, which is atypical for this time of year, points to the possibility of short term volatility. Cyclically speaking, hogs tend to have a yearly high around May to July when the supply of hogs is at the lowest. With sharp moves possible in either direction, that to me is time for a strangle with the potential to profit if the market moves in either direction. You can get some out-of-money puts and calls really cheap, putting down very little capital for a large upside. Use April Options so time decay is lowest and since we currently see a large discount for April hogs versus the cash market. We have seen discrepancies when the spot month rolls and continuous moves of 800-1000 points when contracts are less than 3 weeks from expiration. Using out-of-the-money options you can buy 1 $62 call and 1 $55 put to risk a total of 45 points or around $180 per unit plus commissions and fees. Scale up from there as your risk appetite allows.
If futures interest you or to discuss trade ideas, please give me a call.
** Call me for a complimentary consultation on any of your future and futures needs **
Michael Bullion, CAIA
Senior Technical Analyst
Walsh Trading, Inc.
Direct: 312.985.0156
888.391.7894
Fax: 312.256.0109
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.