This is a sample entry from Craig Turner’s weekly market analysis newsletter, Turner’s Take, published on August 15, 2012.
Interesting set up today in February Live Cattle. Many of our traders in the Ag community have been talking about the possibility of a Cattle shortage due to the high cost of feed price. As many of you now know, the cost of grains (Corn, Wheat and Soybeans) have rallied strongly this summer. Producers may be forced to cull their animals due to higher costs.
Some traders think the futures is getting too far ahead of the cash market. The cash market is going to be weaker if producers are sending more cattle to market. The futures could follow the cash lower but many are expecting the cash and front months to feel pressure while the deferred months should be stronger.
I have a few ideas on how to get long Feb Live Cattle:
- Buy Feb Cattle around 131.60 and risk to 129.60 ($800 stop). Target is the previous highs of 135.60 ($1600)
- Buy Feb Cattle and sell October LC around -4.750, risk to -3.500 ($600 risk), target previous low of -8.000 ($1300)
- Work on order to buy the Feb Cattle 132/136 call spread for 1.75 ($700 premium). Look for the spread to trade to 3.5 and exit with a $700 gain. Risk $350 on the total premium
There are two charts below. One of Feb LC and the other is the Oct vs Feb LC futures spread chart.
Feb LC Chart:
Oct Vs Feb LC Chart:
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.
STRATEGIES USING COMBINATIONS OF POSITIONS, SUCH AS SPREAD AND STRADDLE POSITIONS MAY BE AS RISKY AS TAKING A SIMPLE LONG OR SHORT POSITION.
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