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 Feeder Cattle Futures and Options Market

 

The No Nonsense Guide to Buying and Selling Options

 

*The information contained within this webpage comes from sources believed to be reliable. No guarantees are being made to the content's accuracy or completeness.

 

The Beef Cycle

The beef cycle typically begins when ranchers breed their cattle in the  summer which produces calves in the spring. The gestation period is 9 months. These calves are weaned from the mother after 6-8 months and are moved to a stocker operation where they spend 6-10 months and grow to near full size. When they reach 650-849 pounds they are typically sent to a feedlot and become feeder cattle. The animals are considered to have reached full weight at and are ready for slaughter at around 1200 pounds.

Many people do not understand the difference between feeder cattle futures and live cattle futures contracts. As mentioned above, feeder cattle refers to the young animals that weigh from 650 pounds to 849 pounds that are sent to feedlots for finishing into "fed" cattle, the basis of Chicago Mercantile Exchange's (CME) Live Cattle contracts take into account the total herd. CME added Feeder Cattle futures to its list of livestock products in 1971, and in 1987 the Exchange added options on this contract. Learn More >>

 

Feeder Cattle Futures and Options Quick Facts

  • 50,000 pound contract size

  • each one cent move equals $500

  • Trades all months but Feb., June, July, Dec.

  • Feeder cattle futures symbol (FC)

 

Here is the brochure courtesy of the CME group for cattle futures and options.

Cattle Brochure

 

Feeder cattle futures and options have enabled cattle producers who use them to manage their price risk more effectively. Over the years, the contract has continually evolved to more effectively serve both long and short hedgers. Today the CME's feeder cattle future contract and the live cattle future contract have increased their volume considerably over the years to become two of the premiere meat future contracts.

 

Are you a feeder cattle hedger? If so, click here to learn more.

 

Feeder Cattle Options on Futures Contracts Explained

A feeder cattle call option gives the purchaser the right but not the obligation to purchase the underlying futures contract for a specific time period and a specific price (strike price). Let's say that you wanted to purchase a August Feeder Cattle $2.00 call option and pay a premium of $1,300.

This means that you bought the right but not the obligation to buy 50,000 pounds of August feeder cattle for $2.00 a pound. Of course, very few options are bought for the purpose of taking delivery but that is one potential outcome. Chances are that you either bought the feeder cattle option to hedge your price risk in the physical feeder cattle market (you may be a producer like a rancher or a consumer like a restaurant chain) or you are speculating that feeder cattle prices will go higher in an attempt to make a profit.

A feeder cattle put option gives the purchaser the right but not the obligation to sell the underlying futures contract for a specific time period and a specific price. Let's say that you wanted to buy an August feeder cattle $1.90 put option and pay a premium of $1,475.

This means that you have the right but not the obligation to sell 50,000 pounds of August feeder cattle at $1.90 per pound.

What is the delta factor?

The delta factor of an option represents the estimated percentage of change an option will receive based on the movements in the underlying futures contract.

Let's assume the August feeder cattle $2.00 call option above has a 30% delta factor. This means that if the underlying futures contract were to rally by $1,000, then the call option would accrue by approximately $300 or 30% of $1,000 in the feeder cattle futures contract.

What is theta?

Options are wasting assets which means that they lose value as time passes. The theta of an option is the measure of time decay.

Let's assume that you bought an August feeder cattle $2.00 call option with 60 days left until expiration. Let's also assume that the feeder cattle futures prices have moved very little over the last month and are exactly the same price 30 days later. Your option will have lost 30 days worth of time and therefore will be worth less today that it was when it had 60 days left until expiration.

What is vega?

Vega is a measure of the implied volatility of an option contract as it relates to its underlying futures contract. For instance, if the underlying futures contract is extremely volatile then the implied volatility of the options of that futures contract will be affected.

In a high implied volatility environment option premiums tend to expand. Conversely, in a low implied volatility environment the option premiums tend to decrease.

 

 

*Contract information changes from time to time. Please click here to see the most recent contract specifications and click here for the most recent trading hours.

 

Feeder Cattle Futures and Feeder Cattle Options
Contract Specifications

 

Trading Unit
Feeder Cattle Futures: 50,000 lbs. of 700 to 849 lb. Medium Frame #1 and Medium and Large Frame #1 feeder steers
Feeder Cattle Options: One Feeder Cattle Futures Contract
Live Cattle Futures: 40,000 lbs. of 55% choice, 45% select grade live steers
Live Cattle Options: One Live Cattle Futures Contract

Trading Hours
Feeder Cattle Futures: 9:05 a.m. - 1:00 p.m. LTD (12:00p.m.) Central Time
Options: 9:05 a.m. - 1:02 p.m. LTD (12:00p.m.) Central Time

Trading Months
Feeder Cattle Futures: Jan, Mar, Apr, May, Aug, Sept, Oct, and Nov, Eight months listed at a time Live Cattle Futures: Feb, Apr, Jun, Aug, Oct, Dec, Seven months in the February Bi-monthly Cycle
Feeder Cattle Options: Jan, Mar, Apr, May, Aug, Sep, Oct, Nov.
Flex Options: Eight options months listed
Live Cattle Options: Feb, Apr, Jun, Aug, Oct, Dec, Serial Months
Flex Options: Six months in Feb Bi-monthly cycle. One serial month

Point Description
Feeder Futures and Options: 1 point = $.0001 per pound = $5.00
Live Cattle Futures and Options: 1 point = $.0001 per pound = $4.00

Minimum Price Fluctuation
Feeder Cattle Futures and Options-regular: 0.00025 = $12.50
Live Cattle Futures and Options-regular: 0.00025 = $10.00
Feeder Cattle Options-cab: 0.000125 = $6.25
Live Cattle Options-cab: 0.000125 = $5.00

Options Strike Prices
Feeder Cattle Options: Cents per pound. First two months only- $0.01 intervals, $0.60, $0.61, $062 etc. All other months- $0.02 intervals, $0.62, $0.64, $0.66, etc.
for spot month, $0.005 intervals, $0.605, $0.610, $0.615, etc.
Flex Options are listed in intervals of $0.0025
Live Cattle Options: Cents per pound. First two months only- $0.01 intervals e.g. $0.76, $0.77, $0.78. All other months $0.02 intervals e.g. $0.76, $0.78;
Serial Options - $0.01 intervals. Flex Options are listed in intervals of $0.0025.

Product Code
Live Cattle Futures Symbol: LC
Feeder Cattle Futures Symbol: FC

**Click Here Now! for actual feeder cattle futures and options, quotes, prices, expirations, charts .....

 

The No Nonsense Guide to Buying and Selling Options

 

 

To learn about other meat futures visit live cattle futures, lean hog futures and porkbelly futures.

 

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The information presented in this commodity futures and options site is not investment advice and is for informational purposes only. No guarantees are being made to its accuracy or completeness. This information can be considered a solicitation to enter into a derivatives trade. Investing in futures and options carries substantial risk of loss and is not suitable for some people. Past or simulated performance is not indicative to future results.