1. Long Futures

Scenario:

This trader feels that Live Cattle futures are poised for a rally. The implied volatility of the options is relatively high, but the trader does not expect it to come down soon. Therefore, he decides to buy one futures contract.

Specifics:
Underlying Futures Contract:	April Live Cattle
Futures Price Level:	73.00
Days to Futures Expiration:	75
Days to Options Expiration:	55
Option Implied Volatility:	16.2%
Position:	Long 1 Futures

At Expiration:
Breakeven:	73.00 (original futures price)
Loss Risk:	Unlimited; losses increase as futures fall.
Potential Gain:	Unlimited; profits increase as futures rise.

Things to Watch:

Changes in implied volatility have no effect on this position. If the trader has an opinion on volatility, he may consider another strategy. Another strategy may increase potential profits and/or reduce potential losses. Check the next page for suggested follow-up strategies.

Follow-up Trading Strategies