Live Cattle Futures and Options
Market Trading
Learn the most effective strategies for buying and selling options
on futures contracts. Also learn producer and consumer hedging
strategies.
*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 .....
To learn more about the meat futures visit
feeder cattle futures,
lean hog futures and
porkbelly futures.
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