This is a sample entry from Brian Cullen’s email newsletter, The Cullen Outlook.
July / October LEAN HOG spread:
This is a seasonal spread working off of upcoming supply and demand. July looks to be in overbought territory with recent news of slaughter slowdowns and strong export numbers. I think we could see limited upside at these levels:
With the summer months approaching, pork inventories are comfortably set for near-term contracts (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 JULY contract
- BUYING the OCTOBER contract
Premium of 10.75 to the SELL side … (GTC)
- Risk will be 12.00 level (STOP ON THE CLOSE) … ($500.00)
- OBJ will be 6.75 level (LIMIT ORDER) … $1,600.00
(we want this spread to WIDEN once filled)
Initial Margin for this spread is roughly $1,080.00
***Initial margin on this spread is $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.
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