This is a sample entry from Brian Cullen’s email newsletter, The Cullen Outlook.
June / October LEAN HOG spread:
This is a seasonal spread working off of upcoming supply and demand. With the summer months approaching, pork inventories are comfortably set for near-term contracts (June and July), so the interest tends to fade and the market looks ahead. Typically looking towards ensuring supply for fall months as slaughter tends to increase in August and September as the demand also reaches its peak. This course of action would be supportive for selling near term and buying further out.
- SELLING the JUNE contract
- BUYING the OCTOBER contract
Premium of 5.75 to the SELL side (GTC) … last trade 5.50
- Risk will be 7.25 on a STOP ON CLOSE … ($600.00) plus ALL trading fees
- OBJ will be 2.50 on a limit order … +$1,300.00 minus ALL trading fees
Initial Margin for this spread is roughly $810.00
It may not be possible to limit losses to the exact loss limit depending upon market conditions and the possibility of limit moves.
Have a look:
STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
This material is conveyed as a solicitation for entering into a derivatives transaction.
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