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 Live Cattle 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.

 

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 600-800 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 often ask, what is the difference between feeder cattle and live cattle. Live cattle reflects the total current supply and demand for fed cattle, competing meats and feed grains along with long term cyclical patterns for meat supply and demand. The Chicago Mercantile Exchange (CME) broke the mold of traditional futures markets, in the mid-1960's by introducing a futures contract on a non-storable commodity - live cattle. The Live Cattle futures contract has undergone significant changes. Each of these changes has enhanced the usefulness of the live cattle futures and options contract in various risk management programs implemented by livestock producers and consumers to help them hedge price risk exposure. Learn More >>>

 

Live Cattle Futures and Options Quick Facts

  • 40,000 lb contract size

  • each once cent move equals $400

  • trades Feb., April, June, Aug., Oct., Dec.

  • Live cattle futures symbol (LC)

 

Here is the cattle brochure courtesy of the CME Group.

Cattle Brochure

 

These tools have enabled cattle producers who use them to manage their risk more effectively. CME continues to work with the cattle industry to meet producers' changing needs by improving these live cattle futures contracts. Today the live cattle future contract and the feeder cattle future contracts have increased their trading volumes considerably to become two of the premiere contracts in the meat future sector.

 

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

 

Live Cattle Options on Futures Contracts Explained

A live 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 an April live cattle $1.56 call option and pay a premium of $1,900.

This means that you bought the right but not the obligation to buy 40,000 pounds of April live cattle for $1.56 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 live cattle option to hedge your price risk in the physical live cattle market (you may be a producer like a rancher or you may be a consumer like a chain of steak houses) or you are speculating that live cattle prices will go higher in an attempt to make a profit.

A live 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 April live cattle $1.40 put option and pay a premium of $1,560.

This means that you have the right but not the obligation to sell 40,000 pounds of April live cattle at $1.40 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 live cattle $1.56 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 live 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 live cattle $1.56 call option with 60 days left until expiration. Let's also assume that the live 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.

 

Live Cattle Futures and Live Cattle Options
Contract Specifications

 

Trading Unit
Live Cattle Futures: 40,000 lbs. of 55% choice, 45% select grade live steers
Live Cattle Options: One Live Cattle Futures Contract
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

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

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

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

Options Strike Prices
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.
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

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

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

 

The No Nonsense Guide to Buying and Selling Options

 

 

To learn more about the meat futures visit feeder 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.