This is a sample entry from Brian Cullen’s email newsletter, The Cullen Outlook, published on September 04, 2012.
October / December LEAN HOG seasonal spread
I am looking to get long the front month Lean Hog market (October) while shorting the back month (December). We have seen quite a bit of selling over the past 3 weeks and I believe this market will find support somewhere in this low 70’s trading range. Higher grain prices have definitely had their influence on this market and as we head into harvest I believe this sell off comes to an end. This seasonal spread has found continued support at the 1.60 to 1.90 range over the past 4 months and I would like to get involved as we begin to trade in this range once more.
- BUYING the October contract
- SELLING the December contract
Premium of 1.80 to the BUY side (GTC) … last trade 2.10
- Risk would be the 0.80 level (STOP ON CLOSE) … ($400.00)
- OBJ would be the 3.80 level (LIMIT ORDER) … $800.00
Initial margin for this spread is roughly $1,080.00 and the maintenance is $800.00
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.
THE RISK OF LOSS IN TRADING COMMODITY FUTURES AND OPTIONS CONTRACTS CAN BE SUBSTANTIAL. THERE IS A HIGH DEGREE OF LEVERAGE IN FUTURES TRADING BECAUSE OF SMALL MARGIN REQUIREMENTS. THIS LEVERAGE CAN WORK AGAINST YOU AS WELL AS FOR YOU AND CAN LEAD TO LARGE LOSSES AS WELL AS LARGE GAINS.
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