put options

[Caustic Burno]

Your right, the option might be written you have to execise all or part, so you have to have the money to play.
If stock takes off you can make a mint the ugly part is you have to pay capital gains. If you spend 50 buck's on 100 dollar stock you have 50 dollar's in capital gains if you turn right around and sell. You were given the stock options as a raise or bonus. Also if the stock falls below your option, the option is worthless.

 

[inbredredneck]

Your right, the option might be written you have to execise all or part, so you have to have the money to play.
If stock takes off you can make a mint the ugly part is you have to pay capital gains. If you spend 50 buck's on 100 dollar stock you have 50 dollar's in capital gains if you turn right around and sell. You were given the stock options as a raise or bonus. Also if the stock falls below your option, the option is worthless.

With my puts and calls on cattle I am either collecting on the calves, the contract, or it was a wash.

 

[Caustic Burno]

Your right, the option might be written you have to execise all or part, so you have to have the money to play.
If stock takes off you can make a mint the ugly part is you have to pay capital gains. If you spend 50 buck's on 100 dollar stock you have 50 dollar's in capital gains if you turn right around and sell. You were given the stock options as a raise or bonus. Also if the stock falls below your option, the option is worthless.

With my puts and calls on cattle I am either collecting on the calves, the contract, or it was a wash.

The difference is you have skin in the game, on an option paid as a bonus you have no skin in the game unless you exercise your option.

 

[inbredredneck]

Your right, the option might be written you have to execise all or part, so you have to have the money to play.
If stock takes off you can make a mint the ugly part is you have to pay capital gains. If you spend 50 buck's on 100 dollar stock you have 50 dollar's in capital gains if you turn right around and sell. You were given the stock options as a raise or bonus. Also if the stock falls below your option, the option is worthless.

With my puts and calls on cattle I am either collecting on the calves, the contract, or it was a wash.

The difference is you have skin in the game, on an option paid as a bonus you have no skin in the game unless you exercise your option.

I understand what your saying there. Puts and calls don't always work on the weight I want to buy, so I buy a different weight.

 

[inbredredneck]

larry I don't think you understand livestock options very well with escalating markets a call is worth every penny spent and if the market goes south oh well the premium is gone but the calves are cheap

 

[cross_7]

larry I don't think you understand livestock options very well with escalating markets a call is worth every penny spent and if the market goes south oh well the premium is gone but the calves are cheap

on a futures contract i sell a april contract @ 1.47 and it goes to 1.27 then i make .20 a pound, it goes to 1.67 then i lose .20 a pound.
how does a put differ ?

 

[Howdyjabo]

I am just answering to see If I have it right-- so feel free to correct me

A put differs in that you pay more up front- but you don't have to worry about margins calls
and there is no limit on the upswing with a put- so if it goes to 1.67 you don't loose anything

 

[inbredredneck]

I am just answering to see If I have it right-- so feel free to correct me

A put differs in that you pay more up front- but you don't have to worry about margins calls
and there is no limit on the upswing with a put- so if it goes to 1.67 you don't loose anything

If you have $140 put on Feeder cattle and it cost you $7.00 cwt premium. The feeder futures will need to surpass $147 in order for you to make money, and that will profit come thru selling the actual commodity in this case the calves, the first $7.00 goes back into your pocket to cover premium. Now if the feeder futures contract fall below $140 the feeder futures contract will need to fall below $133 before you will see a profit, because the first $7.00 goes back into your pocket to cover premium. Now lets say feeder futures drops to $120 you will exercise your option, you will be paid $20 cwt with $7cwt going back into pocket for premium. Now you sell the commodity at market price add in you $13 cwt. So really you made $133 on 50,000#. On a lower market you lost on the commodity, but exercised the option at a profit. A higher market you lost only the premium but made money on the commodity.

Now a $140 futures contract will never be worth more than $140 and never less than $140. However in a higher market you will need to make margin calls until you settle the contract. You can settle a feeder futures contract with cash only. So you sell the commodity for more than $140 but that profit will need to settle contract or to return margain calls to you pocket. If the commodity falls below $140 that money goes into your account however at settlement it will need to be used to bring the value of the commodity back up to $140.

So to answer your question with a put $167 would pay you $20 cwt more than a straight futures contract

 

[cross_7]

I am just answering to see If I have it right-- so feel free to correct me

A put differs in that you pay more up front- but you don't have to worry about margins calls
and there is no limit on the upswing with a put- so if it goes to 1.67 you don't loose anything

If you have $140 put on Feeder cattle and it cost you $7.00 cwt premium. The feeder futures will need to surpass $147 in order for you to make money, and that will profit come thru selling the actual commodity in this case the calves, the first $7.00 goes back into your pocket to cover premium. Now if the feeder futures contract fall below $140 the feeder futures contract will need to fall below $133 before you will see a profit, because the first $7.00 goes back into your pocket to cover premium. Now lets say feeder futures drops to $120 you will exercise your option, you will be paid $20 cwt with $7cwt going back into pocket for premium. Now you sell the commodity at market price add in you $13 cwt. So really you made $133 on 50,000#. On a lower market you lost on the commodity, but exercised the option at a profit. A higher market you lost only the premium but made money on the commodity.

Now a $140 futures contract will never be worth more than $140 and never less than $140. However in a higher market you will need to make margin calls until you settle the contract. You can settle a feeder futures contract with cash only. So you sell the commodity for more than $140 but that profit will need to settle contract or to return margain calls to you pocket. If the commodity falls below $140 that money goes into your account however at settlement it will need to be used to bring the value of the commodity back up to $140.

So to answer your question with a put $167 would pay you $20 cwt more than a straight futures contract

wouldn't it be .13 x 50000 = 6500.00 ?

 

[inbredredneck]

I am just answering to see If I have it right-- so feel free to correct me

A put differs in that you pay more up front- but you don't have to worry about margins calls
and there is no limit on the upswing with a put- so if it goes to 1.67 you don't loose anything

If you have $140 put on Feeder cattle and it cost you $7.00 cwt premium. The feeder futures will need to surpass $147 in order for you to make money, and that will profit come thru selling the actual commodity in this case the calves, the first $7.00 goes back into your pocket to cover premium. Now if the feeder futures contract fall below $140 the feeder futures contract will need to fall below $133 before you will see a profit, because the first $7.00 goes back into your pocket to cover premium. Now lets say feeder futures drops to $120 you will exercise your option, you will be paid $20 cwt with $7cwt going back into pocket for premium. Now you sell the commodity at market price add in you $13 cwt. So really you made $133 on 50,000#. On a lower market you lost on the commodity, but exercised the option at a profit. A higher market you lost only the premium but made money on the commodity.

Now a $140 futures contract will never be worth more than $140 and never less than $140. However in a higher market you will need to make margin calls until you settle the contract. You can settle a feeder futures contract with cash only. So you sell the commodity for more than $140 but that profit will need to settle contract or to return margain calls to you pocket. If the commodity falls below $140 that money goes into your account however at settlement it will need to be used to bring the value of the commodity back up to $140.

So to answer your question with a put $167 would pay you $20 cwt more than a straight futures contract

wouldn't it be .13 x 50000 = 6500.00 ?

No the 50000# contract was really worth $133 cwt. And yes $6500. on the contract goes towards your lower priced calves to bring that value up.

 

[cross_7]

EDIT
so the contract was for 140 cwt x 50000 = 70000
dropped to 120 cwt x 50000 = 60000
20 cwt less 7.00 premium = 13cwt
120cwt x 50000= 60000
140cwt x 50000= 70000
difference of 10000.00
minus premium 3500
equal 6500.00

 

[inbredredneck]

you exercise at $120 cwt. After paying yourself back for the $7cwt premium you will have $6500 (or $13 cwt) in your account. That profit is derived from the futures contract. I use that money to offset the real dollars I lost on cash calves

 

[cross_7]

now we're on the same page

 

[cross_7]

you exercise at $120 cwt. After paying yourself back for the $7cwt premium you will have $6500 (or $13 cwt) in your account. That profit is derived from the futures contract. I use that money to offset the real dollars I lost on cash calves

so if goes from 140 to 160
how does that work ?
do you just not exercise(?let it expire) the option and lose nothing more than your premium?

 

[larryshoat]

larry I don't think you understand livestock options very well with escalating markets a call is worth every penny spent and if the market goes south oh well the premium is gone but the calves are cheap

I really don't understand it all that well and for that reason I don't stick my money in it. I don't understand why you would buy a call when you already own the cattle. My comments were on risk managing strategies in general, do not seem like a good deal when cattle go up. With owning the cattle and a call it looks like you'll be double long to me. Sure that works great as long as they go up, but as you say if the market "goes south" the premium is gone "but the calves are cheap", really just the opposite of what we want.

Larry

 

[inbredredneck]

I buy a $140 call, and feeder calves go to $180, I exercise the call, I take the $40 cwt difference, pay myself back for the premium and use the rest of the money in my account to buy higher priced calves, lowering the value of the calves back down to $140. So now the value of the real commodity is around $180 but mine only cost me $140. That right there is how you use an option.

 

[inbredredneck]

you exercise at $120 cwt. After paying yourself back for the $7cwt premium you will have $6500 (or $13 cwt) in your account. That profit is derived from the futures contract. I use that money to offset the real dollars I lost on cash calves

so if goes from 140 to 160
how does that work ?
do you just not exercise(?let it expire) the option and lose nothing more than your premium?

correct