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Anonymous
In September I began pushing clients to place a "Synthetic Futures" position on to hedge cattle that would be finished in December. I touted this almost daily on my web site "Shootin' the Bull". Here is how the average hedge panned out. On September 23rd, a position of buying 1 $71.00 put option and selling 1 $73.00 call option for a premium of $1.00 was initiated. The week ending September 20th had the bulk of the cash trading at $67.00. December futures closed on the 23rd at $71.15. I had locked in the basis as well as premium for the cattle. Today is options expiration as well as the client has entered into a cash contract to deliver at $73.50. When you subtract the loss from the hedge, the clients final sale is going to be very close to $70.50. Yes, that is below what cash will more likely than not trade at this week. However, it is better than if he had sold the futures out right, about the same had he paid for an out right opition with equivalent protection, and slightly worse had he done nothing. Of course it's easy now to look back and say, he should have done nothing. I recall last year in hedging his cattle, a similar hedge was placed for some coming off in April and the hedge secured him approximately $10.00 more than without the hedge. Every pen is different with weight, location, and month finished being critical. Since you or I do not know what the future may hold, a repetative application of hedges when advantageous could smooth out some of the roller coaster ride producer are on. Lenders look at strategies such as these as good business praticies. They have a tendency to loan more money when needed or it could sway them to initiate the line of credit needed if questionable. I have worked with banks and lending institutions over the years and have a very good report with them on how to do this type of business. If you need help in hedging your cattle, using your lending institution to the best of your operation, please feel free to contact me at anytime. How are you set for cattle coming off in February? The hefty premium makes for some opportunities for good risk management.
Futures trading is not for everyone. The risk of loss in trading futures can be substantial; therefore, carefully consider whether such trading is suitable for you in light of your financial condition.
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Futures trading is not for everyone. The risk of loss in trading futures can be substantial; therefore, carefully consider whether such trading is suitable for you in light of your financial condition.
[email protected]
