???options/puts on feeder cattle???

[TANK30705]

Will someone explain what is involved with buying a option or put on forty head?? Please keep it simple or you will lose me!
I like the sound of locking a price in but I have to be missing bunch here! What kind of money will it take to buy a put on a load??

 

[kenny thomas]

Someone smarter than me will have to explain it but I dont think you can get an option/put on anything less than a load. One of the guys I buy for has done his for the last 3 years and this year I think it cost about $800 per load of 750lb heifers. Hope someone can explain it.

 

[cross_7]

What I know won't fill a thimble
I'll give you what I got
You don't have to own any cattle for an option or a put
With an option is like any commodity trading and if the value of the cattle drops(futures market) you get a margin call and will need to write a check for the difference
When the option matures(?) you buy a contract to fill the contract you sold.
Cattle go up you make money on the real cattle and lose on the paper cattle
Cattle go down you lose on real cattle but make it up on the paper cattle.
basically insurance

A put on the other hand is like an insurance policy, seems like around 3000.00 for a put but there are no margin calls.
If the cattle drop more than the 3000.00 you paid for the put then you exercise the option, if cattle prices hold or go up then you consider the 3000.00 the cost of doing business or an insurance premium

 

[riverridgefarms]

http://www3.rma.usda.gov/apps/livestock ... /main.aspx. this is not really an answer to your question but should help see if you can work your way through it if not let me know how I can help. This is what I use in Virginia but it is available in most if not all states will try to give u a little run thru
First choose option that says coverage rates and ending value next page will show you the date which is last trading day on board you have to like 10 am next morning to act on these options
Next page choose your state and hit next
Then choose feeder cattle for calves or fed cattle for fats
Next choose type. Either heifers or steers or so on. Weight one is 599 and down weight 2 is 600 and up
Then create report you will see a chart that shows you options of ending dates the expected value the coverage amount you can buy and the cost per hundred for the coverage. The government use to subsidise 13 or 17 % of your premium but not sure about that now. I bought mine through farm bureau but the local office didn't know anything about it had to go through state office .

 

[riverridgefarms]

With what I told you it is more of an insurance. You pay a one time cost and at the end if cattle are worth less than your policy you will get a form to fill out and the will send you a check if they are worth same or more you get a letter saying the prices exceeded your coverage and you are not entitled to any payment. You do have to own cattle to buy the policy.

 

[alohacattle]

Will someone explain what is involved with buying a option or put on forty head?? Please keep it simple or you will lose me!
I like the sound of locking a price in but I have to be missing bunch here! What kind of money will it take to buy a put on a load??

A feeder contract is 50,000#. If you were to buy a April put at $154 it would cost you $2.30. By doing so it would lock in a bottom at $151.70, and the top side is endless if the market indeed goes higher.

 

[kenny thomas]

Will someone explain what is involved with buying a option or put on forty head?? Please keep it simple or you will lose me!
I like the sound of locking a price in but I have to be missing bunch here! What kind of money will it take to buy a put on a load??

A feeder contract is 50,000#. If you were to buy a April put at $154 it would cost you $2.30. By doing so it would lock in a bottom at $151.70, and the top side is endless if the market indeed goes higher.

So if I understand you right that contract would cost $1,150?

 

[alohacattle]

That would be correct.

 

[cross_7]

http://www.cmegroup.com/trading/agricul ... nth=201304

 

[alohacattle]

Cross7 You are completely wrong on a option, you don't make margin calls.

 

[cross_7]

Cross7 You are completely wrong on a option, you don't make margin calls.

You don't ?
Please explain

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.

 

[alohacattle]

When buying a put option on feeder cattle you will never pay more than the initial premium. If you have been making margin calls on a put option that you bought, you need to find a better financial advisor. Buying a put option has no risk of loss except for the initial investment.

 

[cross_7]

When buying a put option on feeder cattle you will never pay more than the initial premium. If you have been making margin calls on a put option that you bought, you need to find a better financial advisor. Buying a put option has no risk of loss except for the initial investment.

I have never bought an option or a put
I thout an option and a put/call were different ?

 

[alohacattle]

There are 2 types of options, puts and calls. As the seller of the underlying commodity, you would buy a put option for a fixed cost to lock in a bottom dollar for your commodity. As the buyer of the underlying commodity you would buy a call option for a fixed price, to lock in the top dollar of the commodity.

 

[cross_7]

Told you I didn't know anything
I meant futures contract(not option) when I was talking about margin calls
I've had it expalained to me a time or two and I still don't get it 100% and may not be getting the right information either.

 

[js1234]

If the board is something your aren't comfortable with but want to lock up the price, you could always try to just basis sell the cattle.

 

[alohacattle]

If the board is something your aren't comfortable with but want to lock up the price, you could always try to just basis sell the cattle.

Explain the steps in selling basis.

 

[TANK30705]

thanks for the info. Ive learnt a little bit here.

 

[cross_7]

thanks for the info. Ive learnt a little bit here.

I'll give you some advice
Don't take advice from dumbazz's

 

[js1234]

If the board is something your aren't comfortable with but want to lock up the price, you could always try to just basis sell the cattle.

Explain the steps in selling basis.

Really not much to explain.
Just selling the cattle outright versus hedging them. Quite a few feedyards will buy cattle based on the board price with the appropriate discount for sex, weight, location etc.
As an example, I just had several loads of May feeders that weren't hedged yet and I wanted to do something on. Before I hedged them, I called a feedyard I sell to from time to time. Asked my buyer what he would do for a basis on May Feeders, English steers, 800lbs., Central California. He bid $8 back of the May board. At the time May was 158.5, so I was offered 150.5 for the cattle. As I was happy with the return that price allowed for this particular set, I just sold the cattle outright using the board as a way to establish the price.