Commodity, Futures, Forex and Everything in Between

Strategy update and let's fence in them hogs!

YOU MUST ALWAYS BE AWARE THAT THERE IS SIGNIFICANT RISK INVOLVED IN TRADING FUTURES AND/OR OPTIONS ON FUTURES AND ARE NOT SUITABLE FOR ALL INVESTORS.

Jobs data came out this morning expecting 200,000 new jobs. The actual number was 133,000. 30-year bonds and 10 year notes screamed higher on the news. This is good news for our long 10-year note calls and bad news for our long 30-year bond puts. Keep in mind, we're long premium. We should still have a good shot at a favorable trade as long as the market makes a significant move in one direction or the other. We will be looking to sell out of the money calls against our long t-note call position if the market extends into the mid 114 level. I will keep you appraised.

The new idea is to create a fence strategy in the hog market. Corn futures are trading at or around $2.00. Soybean meal futures are trading at or around $150.00 per ton. June Hog futures are currently trading at $76.25. This won't last. Something's got to give. It is going to become increasingly difficult to maintain this price level in hogs given the cheap feed availability. The monthly picture looks like a pennant that is breaking down. This formation suggests a potential objective of $42.00 in nearby futures. That's why I want to recommend a fence in the June Hogs. Buy an out of the money put and sell an out of the money call. I suggest buying a June hog $66.00 put (pay approx. $1.25 per contract) and selling a June Hog $82.00 call (receive approx. $1.25 per contract) at the market. This gives us the right to a short position at $66.00 or the obligation to a short position at $82.00. The futures market will determine which one of these comes into play. You are short options, so there is a margin requirement. The current span requirement is $896.00 initial and $719.00 maintenance per contract.

Have a great weekend! Go Eagles!!
Steve

posted by steve erdman @ 10:20 AM