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 Lean Hog Futures and Options Market Trading

 

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.

 

Hogs are typically bred twice a year in order to provide a steady flow of production. The gestation period for  hogs is 3 1/2 months and the average litter size is 9 piglets. They are usually weaned by 3-4 weeks of age and then fed grains such as oats, corn and wheat to fatten them. Pigs typically gain 3.1 pounds per pound of feed and are often ready for slaughter at 6 months of age. Hogs are usually ready for slaughter at about 254 pounds and yield a dressed carcass weight of around 190 pounds which yields about 89 pounds of lean meat.

Chicago Mercantile Exchange (CME) Lean Hogs futures and lean hog options contracts have undergone considerable improvements. Effective with the February 1997 contract, new and improved specifications, including a new name -Lean Hogs- instead of live hogs make this contract even a more viable hedging tool for pork producers and packers throughout the U.S. Learn More >>>

 

Are you a lean hog hedger? If so, click here to learn more.

 

Lean Hogs Options on Futures Contracts Explained

A lean hog 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 April lean hog $1.00 call option and pay a premium of $1,260.

This means that you bought the right but not the obligation to buy 40,000 pounds of April lean hogs for $1.00 per 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 lean hog option to hedge your price risk in the physical lean hog market (maybe you are a producer and own a hog farm or you are an end user and own a chain of barbeque restaurants) or you are speculating that lean hog prices will go higher in an attempt to make a profit.

A lean hog 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 April lean hog .90 cent put option and pay a premium of $1,800.

This means that you have the right but not the obligation to sell 40,000 pounds of April lean hogs at .90 cents 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 April lean hog $1.00 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 April lean hog $1.00 call option with 60 days left until expiration. Let's also assume that the lean hog 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.

 

Lean Hog Futures and Lean Hog Options
Contract Specifications

 

Trading Unit
Lean Hog Futures: 40,000 pounds of lean value hog carcasses
Lean Hog Options: One Lean Hogs Futures Contract

Trading Hours
Lean Hog Futures: 9:05 a.m. to 1:00 p.m. LTD (12:00pm) Central Time
Lean Hog Options: 9:05 a.m. To 1:00 p.m. LTD (12:00pm) Central Time

Trading Months
Lean Hog Futures: Feb., April, May, June, July, Aug., Oct., Dec.

Point Description
Lean Hog Futures and Options: 1 point = $.0001 per hundred pounds = $4.00

Contract Listings
Lean Hog Futures: Nine months of February, April, June, July, August, October, and December. Effective 6/4/01, May is eligible.
Lean Hog Options: Eight months of February, April, June, July, August, October, December, and Flex Options. Effective 6/04/01, May is eligible.

Limits
Lean Hog Futures: $0.02/lb, 200 points, $800 see Rule 1602 D

Minimum Price Fluctuation
Lean Hog Futures: 0.00025 = $10.00
Lean Hog Options: 0.00025 = $10.00 Regular, 0.000125 = $5.00 Cab

Lean Hog futures symbol (LH)

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

 

The No Nonsense Guide to Buying and Selling Options

 

 

To learn more about the meat futures visit live cattle futures, feeder cattle 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.