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<blockquote data-quote="ManyHorses" data-source="post: 59112" data-attributes="member: 1016"><p>I used April to give him until April 1st to sell his cattle... If he sold them two weeks from now he would sell the April Put and if cattle prices went down, make a profit on the Put approximately equal to the loss on 40,000# of his cattle... or if cattle prices went up he' make more money on his cattle and sell the Put a an approximate loss to additional cattle profit on the cattle - What it does is lock up his position so he neither gains or loses on his speculating on cattle prices. DON'T SPECULATE!</p><p></p><p>Live and Feeder Cattle contracts don't come in every month... the next months would protect him until June 3rd where cattle prices have already fallen to 82 cents in anticipation of the Canadian borders being reopened to cattle imports. A June 82 Put would cost $1,410.00... and then out to August, etc.</p><p></p><p>If you were wanting deliverability... and since you are already 'long' the cattle... I'd sell a 'Call' against your cattle. So rather than pay a premium for a Put, you'd sell the Call and reap the premium. If prices went down you would either buy back the Call at a lower price and profit against the loss on your cattle... or deliver your cattle against the Call price you sold.</p><p></p><p>Live Cattle contracts come in $40,000# increments and Feeder Cattle contracts are 50,000# increments - It's highly unlikely you'd have a perfect hedge for very long because your cattle keep growing... and the 'insured' amount needing coverage grows likewise.</p><p></p><p>Hope this helps</p></blockquote><p></p>
[QUOTE="ManyHorses, post: 59112, member: 1016"] I used April to give him until April 1st to sell his cattle... If he sold them two weeks from now he would sell the April Put and if cattle prices went down, make a profit on the Put approximately equal to the loss on 40,000# of his cattle... or if cattle prices went up he' make more money on his cattle and sell the Put a an approximate loss to additional cattle profit on the cattle - What it does is lock up his position so he neither gains or loses on his speculating on cattle prices. DON'T SPECULATE! Live and Feeder Cattle contracts don't come in every month... the next months would protect him until June 3rd where cattle prices have already fallen to 82 cents in anticipation of the Canadian borders being reopened to cattle imports. A June 82 Put would cost $1,410.00... and then out to August, etc. If you were wanting deliverability... and since you are already 'long' the cattle... I'd sell a 'Call' against your cattle. So rather than pay a premium for a Put, you'd sell the Call and reap the premium. If prices went down you would either buy back the Call at a lower price and profit against the loss on your cattle... or deliver your cattle against the Call price you sold. Live Cattle contracts come in $40,000# increments and Feeder Cattle contracts are 50,000# increments - It's highly unlikely you'd have a perfect hedge for very long because your cattle keep growing... and the 'insured' amount needing coverage grows likewise. Hope this helps [/QUOTE]
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