Buying (Going Long) Live Cattle Futures to Profit from a Rise in Live Cattle Prices

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Contents

Buying (Going Long) Live Cattle Futures to Profit from a Rise in Live Cattle Prices

If you are bullish on live cattle, you can profit from a rise in live cattle price by taking up a long position in the live cattle futures market. You can do so by buying (going long) one or more live cattle futures contracts at a futures exchange.

Example: Long Live Cattle Futures Trade

You decide to go long one near-month CME Live Cattle Futures contract at the price of USD 0.8445 per pound. Since each CME Live Cattle Futures contract represents 40000 pounds of live cattle, the value of the futures contract is USD 33,780. However, instead of paying the full value of the contract, you will only be required to deposit an initial margin of USD 1,620 to open the long futures position.

Assuming that a week later, the price of live cattle rises and correspondingly, the price of live cattle futures jumps to USD 0.9290 per pound. Each contract is now worth USD 37,158. So by selling your futures contract now, you can exit your long position in live cattle futures with a profit of USD 3,378.

Long Live Cattle Futures Strategy: Buy LOW, Sell HIGH
BUY 40000 pounds of live cattle at USD 0.8445/lb USD 33,780
SELL 40000 pounds of live cattle at USD 0.9290/lb USD 37,158
Profit USD 3,378
Investment (Initial Margin) USD 1,620
Return on Investment 208.5185%

Margin Requirements & Leverage

In the examples shown above, although live cattle prices have moved by only 10%, the ROI generated is 208.5185%. This leverage is made possible by the relatively low margin (approximately 4.7957%) required to control a large amount of live cattle represented by each contract.

Leverage is a double edged weapon. The above examples only depict positive scenarios whereby the market is favorable towards you. If the market turn against you, you will be required to top up your account to meet the margin requirements in order for your futures position to remain open.

Learn More About Live Cattle Futures & Options Trading

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Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

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  • Binomo
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    2nd place! Good choice!

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

Buying (Going Long) Feeder Cattle Futures to Profit from a Rise in Feeder Cattle Prices

If you are bullish on feeder cattle, you can profit from a rise in feeder cattle price by taking up a long position in the feeder cattle futures market. You can do so by buying (going long) one or more feeder cattle futures contracts at a futures exchange.

Example: Long Feeder Cattle Futures Trade

You decide to go long one near-month CME Feeder Cattle Futures contract at the price of USD 0.9520 per pound. Since each CME Feeder Cattle Futures contract represents 50000 pounds of feeder cattle, the value of the futures contract is USD 47,600. However, instead of paying the full value of the contract, you will only be required to deposit an initial margin of USD 2,025 to open the long futures position.

Assuming that a week later, the price of feeder cattle rises and correspondingly, the price of feeder cattle futures jumps to USD 1.0472 per pound. Each contract is now worth USD 52,360. So by selling your futures contract now, you can exit your long position in feeder cattle futures with a profit of USD 4,760.

Long Feeder Cattle Futures Strategy: Buy LOW, Sell HIGH
BUY 50000 pounds of feeder cattle at USD 0.9520/lb USD 47,600
SELL 50000 pounds of feeder cattle at USD 1.0472/lb USD 52,360
Profit USD 4,760
Investment (Initial Margin) USD 2,025
Return on Investment 235.0617%

Margin Requirements & Leverage

In the examples shown above, although feeder cattle prices have moved by only 10%, the ROI generated is 235.0617%. This leverage is made possible by the relatively low margin (approximately 4.2542%) required to control a large amount of feeder cattle represented by each contract.

Leverage is a double edged weapon. The above examples only depict positive scenarios whereby the market is favorable towards you. If the market turn against you, you will be required to top up your account to meet the margin requirements in order for your futures position to remain open.

Learn More About Feeder Cattle Futures & Options Trading

You May Also Like

Continue Reading.

Buying Straddles into Earnings

Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results. [Read on. ]

Writing Puts to Purchase Stocks

If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount. [Read on. ]

What are Binary Options and How to Trade Them?

Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time. [Read on. ]

Investing in Growth Stocks using LEAPS® options

If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about LEAPS® and why I consider them to be a great option for investing in the next Microsoft®. [Read on. ]

Effect of Dividends on Option Pricing

Cash dividends issued by stocks have big impact on their option prices. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date. [Read on. ]

Bull Call Spread: An Alternative to the Covered Call

As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative. [Read on. ]

Dividend Capture using Covered Calls

Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date. [Read on. ]

Leverage using Calls, Not Margin Calls

To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin. [Read on. ]

Day Trading using Options

Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading. [Read on. ]

What is the Put Call Ratio and How to Use It

Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator. [Read on. ]

Understanding Put-Call Parity

Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in 1969. It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. [Read on. ]

Understanding the Greeks

In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions. They are known as “the greeks”. [Read on. ]

Valuing Common Stock using Discounted Cash Flow Analysis

Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow. [Read on. ]

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Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    1st Place! Best Binary Broker 2020!
    Best Choice for Beginners — Free Education + Free Demo Acc!
    Sign-up and Get Big Bonus:

  • Binomo
    Binomo

    2nd place! Good choice!

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