Live Cattle Futures Trading Basics

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Live Cattle Futures Trading Basics

Live Cattle futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of live cattle (eg. 40000 pounds) at a predetermined price on a future delivery date.

Live Cattle Futures Exchanges

You can trade Live Cattle futures at Chicago Mercantile Exchange (CME).

CME Live Cattle futures prices are quoted in dollars and cents per pound and are traded in lot sizes of 40000 pounds (18 metric tons).

Exchange & Product Name Symbol Contract Size Initial Margin
CME Live Cattle Futures
(Price Quotes)
LC 40000 pounds
(Full Contract Spec)
USD 1,620 (approx. 5%)
(Latest Margin Info)

Live Cattle Futures Trading Basics

Consumers and producers of live cattle can manage live cattle price risk by purchasing and selling live cattle futures. Live Cattle producers can employ a short hedge to lock in a selling price for the live cattle they produce while businesses that require live cattle can utilize a long hedge to secure a purchase price for the commodity they need.

Live Cattle futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable live cattle price movement. Speculators buy live cattle futures when they believe that live cattle prices will go up. Conversely, they will sell live cattle futures when they think that live cattle prices will fall.

Learn More About Live Cattle Futures & Options Trading

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If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

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Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

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Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Feeder Cattle Futures Trading Basics

Feeder Cattle futures are standardized, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of feeder cattle (eg. 50000 pounds) at a predetermined price on a future delivery date.

Feeder Cattle Futures Exchanges

You can trade Feeder Cattle futures at Chicago Mercantile Exchange (CME).

CME Feeder Cattle futures prices are quoted in dollars and cents per pound and are traded in lot sizes of 50000 pounds (23 metric tons).

Exchange & Product Name Symbol Contract Size Initial Margin
CME Feeder Cattle Futures
(Price Quotes)
FC 50000 pounds
(Full Contract Spec)
USD 2,025 (approx. 4%)
(Latest Margin Info)

Feeder Cattle Futures Trading Basics

Consumers and producers of feeder cattle can manage feeder cattle price risk by purchasing and selling feeder cattle futures. Feeder Cattle producers can employ a short hedge to lock in a selling price for the feeder cattle they produce while businesses that require feeder cattle can utilize a long hedge to secure a purchase price for the commodity they need.

Feeder Cattle futures are also traded by speculators who assume the price risk that hedgers try to avoid in return for a chance to profit from favorable feeder cattle price movement. Speculators buy feeder cattle futures when they believe that feeder cattle prices will go up. Conversely, they will sell feeder cattle futures when they think that feeder cattle prices will fall.

Learn More About Feeder Cattle Futures & Options Trading

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Continue Reading.

Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Cattle futures simply — or not so simply — explained

The term “Futures Market” is sometimes daunting because not everyone is familiar with what it represents, how it works, and how it can be used. The purpose of this short article is to address the major questions and to help readers understand the basics of the futures market as it relates to cattle.

Starting with what most people know — A cattle producer can physically sell cattle any day of the week either through an auction market, private treaty, video sale, or other venue. In most cases, cattle physically move from one operation to another on the day of the sale or shortly after the sale (one to two weeks). In other instances, cattle may be sold today but physical ownership of the animals does not change for a few months which would be the makings of a forward contract.

An example of a forward contract would be a stocker cattle producer who has 650-pound steers the producer plans to grow to 800-pound steers. The producer may choose to sell them today as 800-pound steers, while they still weigh 650 pounds, with a physical delivery date 75 days in the future. Thus, in 75 days, 800-pound steers will physically change ownership even though the price and buyer were known 75 days prior to delivery. One reason a cattle seller would use a forward contract is to capture a price if he or she thinks prices may decline between today and when the cattle will be ready for market. Alternatively, a buyer would use a forward contract if he or she thought there was risk of cattle prices increasing. It is not always possible to forward contract cattle.

The primary purpose of futures contracts is to provide an efficient method of managing price risk with a standardized contract. Understanding the aforementioned cattle marketing basics will help with understanding futures markets for cattle. There are two types of cattle traded on the futures market, “live cattle” and “feeder cattle.” The “live cattle” contract is a 40,000-pound contract representing cattle ready to be harvested and that will grade 55 percent Choice, 45 percent Select, and yield grade 3. The “feeder cattle” contract represents 50,000 pounds of steers weighing 700 to 900 pounds (800-pound average) and are medium to large frame No. 1 and 2 muscled. There are more contract specifics, but they are not necessary for this discussion.

The futures market is an electronic market running parallel to the local cash market for the same commodity. In the instance of feeder cattle, a producer can sell feeder cattle any day of the week at an auction market. The producer’s decision to market at a certain time is often influenced by the expected price in the weeks to come. Thus, if the producer thinks prices will increase in the next few weeks then the producer may wait to market the feeder cattle in the coming weeks. Similarly, feeder cattle futures can be traded Monday through Friday by anyone. Persons trading in the futures market buy and sell contracts based on the expectations of prices. If a person trading futures believes prices are going up as time passes then the trader will buy the contract today and sell it at a later date when the price is expected to be higher. In essence, buy low and sell high. The primary difference between the auction market and the futures market is the auction market has a physical animal that changes ownership while the futures market is trading an electronic contract and no animal has to physically change ownership. (This may be the most difficult thing to understand!)

For producers, the futures market has several uses including insight on direction of cattle prices, expected price levels, and price transparency. However, the primary use is to provide a method of managing price risk.

The futures market can be used in place of forward contracts which are not always easy to establish. The way a producer uses the futures is by operating in two markets simultaneously, the futures market and the local cash market. Consider the stocker producer with 650-pound steers who intends to sell the steers as 800-pound steers 75 days from today. If the producer could not forward contract the cattle with an actual buyer then the producer could keep growing the cattle and sell a futures contract for the month that most closely aligns with 75 days in the future. Thus, the stocker producer would sell a feeder cattle futures contract today and continue growing the cattle as intended. In 75 days, the stocker producer would sell the 800 pound steers at the local auction, through a video sale, or the normal method of marketing and at the same time buy back the feeder cattle contract that was sold 75 days earlier. This method essentially locked in a price since the futures market and cash markets are expected to move in the same direction. £

Best Binary Options Brokers: 2020 Ranking
  • Binarium
    Binarium

    Best Choice! The leader in our ranking!
    Perfect for beginners!
    Free Demo Acc + Free Trading Education!

  • Binomo
    Binomo

    Good choice for experienced traders!

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