My Experiences Trading Live Cattle and Meat Commodity Futures Contracts and Options
Live Cattle, like corn is a great market for beginning commodity traders. The meats complex also includes Pork Bellies, Lean Hogs and Feeder Cattle. Here's some hints and kinks to get you off to a good start trading the meats!
LIVE CATTLE
Live Cattle, like corn, is a great market for beginners. The margins are low and the volatility is usually medium. An account margin of $1200 controls a 40,000 pound futures contract of about $30,000 in value. One full cent/pound of price movement is equal to $400.
The meat complex includes Live Cattle, Feeder Cattle, Lean Hogs, and the ever-popular Pork Bellies. The name, "Pork Bellies" may sound funny, but it's actually frozen bacon. The meat complex has a lot of similarities amongst its members. However, at times their differences and situations can be very different.
Live Cattle futures is the most liquid and actively traded of the meat complex. ("active and liquid" go hand in hand) Live cattle have a dominant ten-year cycle. This rhythm has occurred like clockwork over the decades. Many major lows have occurred when this cycle was due to bottom. This past year the cycle has flipped phase to a high rather than a low, which is indicative of a major top forming. Indeed, cattle has set major historic highs on this ten year cycle. Many lows and highs occur in April-May time frame. Keep an eye on the market during this time period.
Cattle put and call options are generally fairly priced. Usually the CME (Chicago Mercantile Exchange) has the option bid and offer quotes posted. This is invaluable to prevent flying blind during entries and exits. Buying options "at the market" is a recipe for poor fills in most any option market. However, these option quotes are not updated to the minute. It's best to check them by having the broker call the floor first, before placing an order.
Position traders can usually look for five to ten cent moves in cattle. This equates to $2,000- $4,000 a contract. The live cattle market once sold as low as 34 cents / pound in the 1970’s. Just recently the market traded as high as $1.04 / pound when mad cow disease and bird flu threatened the cattle stock.
A big percentage of meat futures contracts and option trading originates from commercial business hedging and not speculation. The unwinding of these hedges can greatly influence the market. Hedging is when a producer sells a futures contract to lock in his delivery price for the future. He is simply looking to get a far price for his goods and doesn't want to worry about further price swings. The speculators take on this risk hoping to buy and sell these contracts at a profit.
FEEDER CATTLE
Feeder Cattle trade much like Live Cattle. Feeders are basically what the name implies; cattle on feed. The price of feed will make a difference in the price of the Feeder Cattle futures. If the price of grains skyrockets, it may be too expensive to keep feeding cattle. That would mean a rancher might be forced to sell off a larger part of his herd than he would have in more normal conditions. This will create a price drop if many ranchers choose this remedy. A speculator could profit from this price drop by selling cattle futures short.
The Feeder Cattle futures contract is less liquid than Live Cattle futures. The Feeder contract size is larger by ten thousand pounds. This equates to $100 more per full point move. (one cent = one full point) Feeder Cattle usually make larger movements than Live Cattle. The price low in the 1970’s for Feeders was at 36 cents while the high in 2006 was $1.20 a pound. This was 16 cents higher than Live Cattle Futures.
LEAN HOGS
Lean Hog futures and options are very liquid. Call and put options can be purchased cheaply at times, or at least for fair prices. Lean hog futures often make good price moves. Live Hog cash margin requirements are about the same as Live Cattle, about $1200. A one cent move equates to $400.
If you ever buy lean hogs in the low 20-cent level or sell them in the high 85-cent level, you are trading at their historic trading ranges. These prices have historically been great places to accumulate positions for a long haul trade. Sometimes the Lean Hog market has doubled in a relatively short period of time. Highs often occur in April and May; lows in the late fall.
PORK BELLIES
Pork Belly Futures are the most illiquid, volatile, and difficult to trade. However, you can make a lot of money if you're right. This is not a market for the unaware. It's very common to see Pork Belly futures go limit up and down in the same day. Account margin is $1600 to control a $30,000 futures contract. This is similar to hogs and cattle futures.
There are no Pork Belly contracts available from September to January. Therefore there are very large fluctuations when the August contract expires and the February becomes the next active month. Major highs and lows often occur around this time period. Pork Belly options are completely illiquid and there are few traded. Few option strikes are available and open interest is practically non-existent. Trade these options at your own risk.
STRATEGY
Here's how I look for opportunities in the meat markets: First I generate a TimeLine forecast that shows a strong move up or down in a particular meat. The TimeLine is based on time cycles and other preprogrammed patterns. I then determine if the move is expected to be choppy, trending, and for how long. This helps us focus on possible directional futures/option positions or writing options in a range, or even writing options with the trend.
Next I use automated option software to search for the best of 1600 strategies based on the expected market move. I compare these option to option combinations against futures to options combinations. At some point I will find a compromise between risk, profit and simplicity in one or two strategies. In hindsight there's always a best strategy we could have used. Keep this is mind when narrowing down the choices. When finished, we want to have one or two potential trades to work with. We call the selected few, "high probability, low risk trades."
Remember there is more to planning a trade than just coming up with a forecast. The market may move as predicted but we can still lose by choosing the wrong trading vehicles. Pick the right vehicles and strategies that will allow us to stay in the market without excessive fear, but still carrying calculated risk.
We NEED to take on calculated risk or the market will not pay us for our services. In addition, the vehicle has to move far enough to make a profit without letting the expense of protection eat us up. Excessive protection (risk avoidance) can come in the form of option premiums, too close-in stop loss orders - and overdone, complex spread strategies. Matching a forecast to a strategy is an important skill to succeed in commodity trading.
Good Trading!
LIVE CATTLE
Live Cattle, like corn, is a great market for beginners. The margins are low and the volatility is usually medium. An account margin of $1200 controls a 40,000 pound futures contract of about $30,000 in value. One full cent/pound of price movement is equal to $400.
The meat complex includes Live Cattle, Feeder Cattle, Lean Hogs, and the ever-popular Pork Bellies. The name, "Pork Bellies" may sound funny, but it's actually frozen bacon. The meat complex has a lot of similarities amongst its members. However, at times their differences and situations can be very different.
Live Cattle futures is the most liquid and actively traded of the meat complex. ("active and liquid" go hand in hand) Live cattle have a dominant ten-year cycle. This rhythm has occurred like clockwork over the decades. Many major lows have occurred when this cycle was due to bottom. This past year the cycle has flipped phase to a high rather than a low, which is indicative of a major top forming. Indeed, cattle has set major historic highs on this ten year cycle. Many lows and highs occur in April-May time frame. Keep an eye on the market during this time period.
Cattle put and call options are generally fairly priced. Usually the CME (Chicago Mercantile Exchange) has the option bid and offer quotes posted. This is invaluable to prevent flying blind during entries and exits. Buying options "at the market" is a recipe for poor fills in most any option market. However, these option quotes are not updated to the minute. It's best to check them by having the broker call the floor first, before placing an order.
Position traders can usually look for five to ten cent moves in cattle. This equates to $2,000- $4,000 a contract. The live cattle market once sold as low as 34 cents / pound in the 1970’s. Just recently the market traded as high as $1.04 / pound when mad cow disease and bird flu threatened the cattle stock.
A big percentage of meat futures contracts and option trading originates from commercial business hedging and not speculation. The unwinding of these hedges can greatly influence the market. Hedging is when a producer sells a futures contract to lock in his delivery price for the future. He is simply looking to get a far price for his goods and doesn't want to worry about further price swings. The speculators take on this risk hoping to buy and sell these contracts at a profit.
FEEDER CATTLE
Feeder Cattle trade much like Live Cattle. Feeders are basically what the name implies; cattle on feed. The price of feed will make a difference in the price of the Feeder Cattle futures. If the price of grains skyrockets, it may be too expensive to keep feeding cattle. That would mean a rancher might be forced to sell off a larger part of his herd than he would have in more normal conditions. This will create a price drop if many ranchers choose this remedy. A speculator could profit from this price drop by selling cattle futures short.
The Feeder Cattle futures contract is less liquid than Live Cattle futures. The Feeder contract size is larger by ten thousand pounds. This equates to $100 more per full point move. (one cent = one full point) Feeder Cattle usually make larger movements than Live Cattle. The price low in the 1970’s for Feeders was at 36 cents while the high in 2006 was $1.20 a pound. This was 16 cents higher than Live Cattle Futures.
LEAN HOGS
Lean Hog futures and options are very liquid. Call and put options can be purchased cheaply at times, or at least for fair prices. Lean hog futures often make good price moves. Live Hog cash margin requirements are about the same as Live Cattle, about $1200. A one cent move equates to $400.
If you ever buy lean hogs in the low 20-cent level or sell them in the high 85-cent level, you are trading at their historic trading ranges. These prices have historically been great places to accumulate positions for a long haul trade. Sometimes the Lean Hog market has doubled in a relatively short period of time. Highs often occur in April and May; lows in the late fall.
PORK BELLIES
Pork Belly Futures are the most illiquid, volatile, and difficult to trade. However, you can make a lot of money if you're right. This is not a market for the unaware. It's very common to see Pork Belly futures go limit up and down in the same day. Account margin is $1600 to control a $30,000 futures contract. This is similar to hogs and cattle futures.
There are no Pork Belly contracts available from September to January. Therefore there are very large fluctuations when the August contract expires and the February becomes the next active month. Major highs and lows often occur around this time period. Pork Belly options are completely illiquid and there are few traded. Few option strikes are available and open interest is practically non-existent. Trade these options at your own risk.
STRATEGY
Here's how I look for opportunities in the meat markets: First I generate a TimeLine forecast that shows a strong move up or down in a particular meat. The TimeLine is based on time cycles and other preprogrammed patterns. I then determine if the move is expected to be choppy, trending, and for how long. This helps us focus on possible directional futures/option positions or writing options in a range, or even writing options with the trend.
Next I use automated option software to search for the best of 1600 strategies based on the expected market move. I compare these option to option combinations against futures to options combinations. At some point I will find a compromise between risk, profit and simplicity in one or two strategies. In hindsight there's always a best strategy we could have used. Keep this is mind when narrowing down the choices. When finished, we want to have one or two potential trades to work with. We call the selected few, "high probability, low risk trades."
Remember there is more to planning a trade than just coming up with a forecast. The market may move as predicted but we can still lose by choosing the wrong trading vehicles. Pick the right vehicles and strategies that will allow us to stay in the market without excessive fear, but still carrying calculated risk.
We NEED to take on calculated risk or the market will not pay us for our services. In addition, the vehicle has to move far enough to make a profit without letting the expense of protection eat us up. Excessive protection (risk avoidance) can come in the form of option premiums, too close-in stop loss orders - and overdone, complex spread strategies. Matching a forecast to a strategy is an important skill to succeed in commodity trading.
Good Trading!
Live Cattle, like corn is a great market for beginning commodity traders. The meats complex also includes Pork Bellies, Lean Hogs and Feeder Cattle. Here's some hints and kinks to get you off to a good start trading the meats!
LIVE CATTLE
Live Cattle, like corn, is a great market for beginners. The margins are low and the volatility is usually medium. An account margin of $1200 controls a 40,000 pound futures contract of about $30,000 in value. One full cent/pound of price movement is equal to $400.
The meat complex includes Live Cattle, Feeder Cattle, Lean Hogs, and the ever-popular Pork Bellies. The name, "Pork Bellies" may sound funny, but it's actually frozen bacon. The meat complex has a lot of similarities amongst its members. However, at times their differences and situations can be very different.
Live Cattle futures is the most liquid and actively traded of the meat complex. ("active and liquid" go hand in hand) Live cattle have a dominant ten-year cycle. This rhythm has occurred like clockwork over the decades. Many major lows have occurred when this cycle was due to bottom. This past year the cycle has flipped phase to a high rather than a low, which is indicative of a major top forming. Indeed, cattle has set major historic highs on this ten year cycle. Many lows and highs occur in April-May time frame. Keep an eye on the market during this time period.
Cattle put and call options are generally fairly priced. Usually the CME (Chicago Mercantile Exchange) has the option bid and offer quotes posted. This is invaluable to prevent flying blind during entries and exits. Buying options "at the market" is a recipe for poor fills in most any option market. However, these option quotes are not updated to the minute. It's best to check them by having the broker call the floor first, before placing an order.
Position traders can usually look for five to ten cent moves in cattle. This equates to $2,000- $4,000 a contract. The live cattle market once sold as low as 34 cents / pound in the 1970’s. Just recently the market traded as high as $1.04 / pound when mad cow disease and bird flu threatened the cattle stock.
A big percentage of meat futures contracts and option trading originates from commercial business hedging and not speculation. The unwinding of these hedges can greatly influence the market. Hedging is when a producer sells a futures contract to lock in his delivery price for the future. He is simply looking to get a far price for his goods and doesn't want to worry about further price swings. The speculators take on this risk hoping to buy and sell these contracts at a profit.
FEEDER CATTLE
Feeder Cattle trade much like Live Cattle. Feeders are basically what the name implies; cattle on feed. The price of feed will make a difference in the price of the Feeder Cattle futures. If the price of grains skyrockets, it may be too expensive to keep feeding cattle. That would mean a rancher might be forced to sell off a larger part of his herd than he would have in more normal conditions. This will create a price drop if many ranchers choose this remedy. A speculator could profit from this price drop by selling cattle futures short.
The Feeder Cattle futures contract is less liquid than Live Cattle futures. The Feeder contract size is larger by ten thousand pounds. This equates to $100 more per full point move. (one cent = one full point) Feeder Cattle usually make larger movements than Live Cattle. The price low in the 1970’s for Feeders was at 36 cents while the high in 2006 was $1.20 a pound. This was 16 cents higher than Live Cattle Futures.
LEAN HOGS
Lean Hog futures and options are very liquid. Call and put options can be purchased cheaply at times, or at least for fair prices. Lean hog futures often make good price moves. Live Hog cash margin requirements are about the same as Live Cattle, about $1200. A one cent move equates to $400.
If you ever buy lean hogs in the low 20-cent level or sell them in the high 85-cent level, you are trading at their historic trading ranges. These prices have historically been great places to accumulate positions for a long haul trade. Sometimes the Lean Hog market has doubled in a relatively short period of time. Highs often occur in April and May; lows in the late fall.
PORK BELLIES
Pork Belly Futures are the most illiquid, volatile, and difficult to trade. However, you can make a lot of money if you're right. This is not a market for the unaware. It's very common to see Pork Belly futures go limit up and down in the same day. Account margin is $1600 to control a $30,000 futures contract. This is similar to hogs and cattle futures.
There are no Pork Belly contracts available from September to January. Therefore there are very large fluctuations when the August contract expires and the February becomes the next active month. Major highs and lows often occur around this time period. Pork Belly options are completely illiquid and there are few traded. Few option strikes are available and open interest is practically non-existent. Trade these options at your own risk.
STRATEGY
Here's how I look for opportunities in the meat markets: First I generate a TimeLine forecast that shows a strong move up or down in a particular meat. The TimeLine is based on time cycles and other preprogrammed patterns. I then determine if the move is expected to be choppy, trending, and for how long. This helps us focus on possible directional futures/option positions or writing options in a range, or even writing options with the trend.
Next I use automated option software to search for the best of 1600 strategies based on the expected market move. I compare these option to option combinations against futures to options combinations. At some point I will find a compromise between risk, profit and simplicity in one or two strategies. In hindsight there's always a best strategy we could have used. Keep this is mind when narrowing down the choices. When finished, we want to have one or two potential trades to work with. We call the selected few, "high probability, low risk trades."
Remember there is more to planning a trade than just coming up with a forecast. The market may move as predicted but we can still lose by choosing the wrong trading vehicles. Pick the right vehicles and strategies that will allow us to stay in the market without excessive fear, but still carrying calculated risk.
We NEED to take on calculated risk or the market will not pay us for our services. In addition, the vehicle has to move far enough to make a profit without letting the expense of protection eat us up. Excessive protection (risk avoidance) can come in the form of option premiums, too close-in stop loss orders - and overdone, complex spread strategies. Matching a forecast to a strategy is an important skill to succeed in commodity trading.
Good Trading!
LIVE CATTLE
Live Cattle, like corn, is a great market for beginners. The margins are low and the volatility is usually medium. An account margin of $1200 controls a 40,000 pound futures contract of about $30,000 in value. One full cent/pound of price movement is equal to $400.
The meat complex includes Live Cattle, Feeder Cattle, Lean Hogs, and the ever-popular Pork Bellies. The name, "Pork Bellies" may sound funny, but it's actually frozen bacon. The meat complex has a lot of similarities amongst its members. However, at times their differences and situations can be very different.
Live Cattle futures is the most liquid and actively traded of the meat complex. ("active and liquid" go hand in hand) Live cattle have a dominant ten-year cycle. This rhythm has occurred like clockwork over the decades. Many major lows have occurred when this cycle was due to bottom. This past year the cycle has flipped phase to a high rather than a low, which is indicative of a major top forming. Indeed, cattle has set major historic highs on this ten year cycle. Many lows and highs occur in April-May time frame. Keep an eye on the market during this time period.
Cattle put and call options are generally fairly priced. Usually the CME (Chicago Mercantile Exchange) has the option bid and offer quotes posted. This is invaluable to prevent flying blind during entries and exits. Buying options "at the market" is a recipe for poor fills in most any option market. However, these option quotes are not updated to the minute. It's best to check them by having the broker call the floor first, before placing an order.
Position traders can usually look for five to ten cent moves in cattle. This equates to $2,000- $4,000 a contract. The live cattle market once sold as low as 34 cents / pound in the 1970’s. Just recently the market traded as high as $1.04 / pound when mad cow disease and bird flu threatened the cattle stock.
A big percentage of meat futures contracts and option trading originates from commercial business hedging and not speculation. The unwinding of these hedges can greatly influence the market. Hedging is when a producer sells a futures contract to lock in his delivery price for the future. He is simply looking to get a far price for his goods and doesn't want to worry about further price swings. The speculators take on this risk hoping to buy and sell these contracts at a profit.
FEEDER CATTLE
Feeder Cattle trade much like Live Cattle. Feeders are basically what the name implies; cattle on feed. The price of feed will make a difference in the price of the Feeder Cattle futures. If the price of grains skyrockets, it may be too expensive to keep feeding cattle. That would mean a rancher might be forced to sell off a larger part of his herd than he would have in more normal conditions. This will create a price drop if many ranchers choose this remedy. A speculator could profit from this price drop by selling cattle futures short.
The Feeder Cattle futures contract is less liquid than Live Cattle futures. The Feeder contract size is larger by ten thousand pounds. This equates to $100 more per full point move. (one cent = one full point) Feeder Cattle usually make larger movements than Live Cattle. The price low in the 1970’s for Feeders was at 36 cents while the high in 2006 was $1.20 a pound. This was 16 cents higher than Live Cattle Futures.
LEAN HOGS
Lean Hog futures and options are very liquid. Call and put options can be purchased cheaply at times, or at least for fair prices. Lean hog futures often make good price moves. Live Hog cash margin requirements are about the same as Live Cattle, about $1200. A one cent move equates to $400.
If you ever buy lean hogs in the low 20-cent level or sell them in the high 85-cent level, you are trading at their historic trading ranges. These prices have historically been great places to accumulate positions for a long haul trade. Sometimes the Lean Hog market has doubled in a relatively short period of time. Highs often occur in April and May; lows in the late fall.
PORK BELLIES
Pork Belly Futures are the most illiquid, volatile, and difficult to trade. However, you can make a lot of money if you're right. This is not a market for the unaware. It's very common to see Pork Belly futures go limit up and down in the same day. Account margin is $1600 to control a $30,000 futures contract. This is similar to hogs and cattle futures.
There are no Pork Belly contracts available from September to January. Therefore there are very large fluctuations when the August contract expires and the February becomes the next active month. Major highs and lows often occur around this time period. Pork Belly options are completely illiquid and there are few traded. Few option strikes are available and open interest is practically non-existent. Trade these options at your own risk.
STRATEGY
Here's how I look for opportunities in the meat markets: First I generate a TimeLine forecast that shows a strong move up or down in a particular meat. The TimeLine is based on time cycles and other preprogrammed patterns. I then determine if the move is expected to be choppy, trending, and for how long. This helps us focus on possible directional futures/option positions or writing options in a range, or even writing options with the trend.
Next I use automated option software to search for the best of 1600 strategies based on the expected market move. I compare these option to option combinations against futures to options combinations. At some point I will find a compromise between risk, profit and simplicity in one or two strategies. In hindsight there's always a best strategy we could have used. Keep this is mind when narrowing down the choices. When finished, we want to have one or two potential trades to work with. We call the selected few, "high probability, low risk trades."
Remember there is more to planning a trade than just coming up with a forecast. The market may move as predicted but we can still lose by choosing the wrong trading vehicles. Pick the right vehicles and strategies that will allow us to stay in the market without excessive fear, but still carrying calculated risk.
We NEED to take on calculated risk or the market will not pay us for our services. In addition, the vehicle has to move far enough to make a profit without letting the expense of protection eat us up. Excessive protection (risk avoidance) can come in the form of option premiums, too close-in stop loss orders - and overdone, complex spread strategies. Matching a forecast to a strategy is an important skill to succeed in commodity trading.
Good Trading!
posted by zzzzzzzzzzz at
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