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Cattle futures continue to weaken as traders see producers struggle to find places to bring their cattle to slaughter after the shutdown of the Tyson plant in Joslin, Illinois. While the uncertainty is there for producers as they navigate this new development, we see supplies continuing to be short and yearling sales have diminished as buyers are having a difficult time finding cattle. We think this will lead to ever tightening of supply into the February timeframe which leads us into recommending the following strategies:
February Live Cattle 2027 options
Conservative
Sell the February Live Cattle 250/230 put spread at 17 cents.
One collects $6800 upon entry, less trade costs and fees.
The maximum risk is $1200 plus commissions and fees.
Margin is $1104.00
We suggest risking no more than 200 points per spread or $800 plus commissions and fees.
Work a bid to buy back the put spread at 7 cents for a gain of 4k less trade cost and fees.
Aggressive
Buy the Feb Cattle 2027 224 calls
Sell the Feb Cattle 2027 234/224 put spread.
Cost to entry even money less trade costs and fees.
Margin $2884.00
Risk 500 points or 2K from entry.
We potentially see February cattle trading back to the mid-230s.
Should that occur offer the three way option spread at 800 points for a gain of 3200.00 less trade costs and fees.
**Call me for a free consultation for a marketing plan regarding your livestock needs.**
Ben DiCostanzo
Senior Livestock Analyst
Walsh Trading, Inc.
Direct: 312.957.4163
888.391.7894
Fax: 312.256.0109
Walsh Trading, Inc. is registered as a Guaranteed Introducing Broker with the Commodity Futures Trading Commission and an NFA Member.
Futures and options trading involves substantial risk and is not suitable for all investors. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. The information contained on this site is the opinion of the writer or was obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
All information, communications, publications, and reports, including this specific material, used and distributed by Walsh Trading, Inc. (“WTI”) shall not be construed as a solicitation for entering into a derivatives transaction. WTI does not distribute research reports, employ research analysts, or maintain a research department as defined in CFTC Regulation 1.71.
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