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<blockquote data-quote="Craig-TX" data-source="post: 59387" data-attributes="member: 39"><p>I must have misunderstood when above you said</p><p></p><p></p><p></p><p>and</p><p></p><p></p><p></p><p></p><p>Richard, as you know a futures option is a legally binding contract. If a rancher sells a call he is not only committing himself, he is betting <em>against</em> prices going up. He is also increasing his risk beyond that of holding a long position in livestock. If prices go up substantially (which he would normally desire) he could be facing margin calls and have to throw good money after bad. If they go up a lot he could be in a world of hurt because the clock is ticking and he's going to owe somebody a contract of cattle that will cost a lot more to buy than his contract will bring.</p><p></p><p>It can be categorically stated with 100% certainty that the only people who consistently win in futures are the people in the trading pits. </p><p></p><p>Even the big corporations occasionally loose on their hedging bets. But they have those losses built into their profit models and they also have the capital to absorb an occasional anomaly. That's a whole different world than us ranchers. Cow/calf producers typically don't have the extra cash laying around to roll the dice in Chicago. If they have extra money they will typically put it into the things they know and will have some degree of control over – namely land and cattle.</p><p></p><p>Sincerely wishing you a Merry Christmas.</p><p></p><p>Craig-TX</p></blockquote><p></p>
[QUOTE="Craig-TX, post: 59387, member: 39"] I must have misunderstood when above you said and Richard, as you know a futures option is a legally binding contract. If a rancher sells a call he is not only committing himself, he is betting [i]against[/i] prices going up. He is also increasing his risk beyond that of holding a long position in livestock. If prices go up substantially (which he would normally desire) he could be facing margin calls and have to throw good money after bad. If they go up a lot he could be in a world of hurt because the clock is ticking and he’s going to owe somebody a contract of cattle that will cost a lot more to buy than his contract will bring. It can be categorically stated with 100% certainty that the only people who consistently win in futures are the people in the trading pits. Even the big corporations occasionally loose on their hedging bets. But they have those losses built into their profit models and they also have the capital to absorb an occasional anomaly. That’s a whole different world than us ranchers. Cow/calf producers typically don’t have the extra cash laying around to roll the dice in Chicago. If they have extra money they will typically put it into the things they know and will have some degree of control over – namely land and cattle. Sincerely wishing you a Merry Christmas. Craig-TX [/QUOTE]
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