Livestock Options

Quote from criveratrading:

yt, how were you constructing your Aug Hog spread?
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civera

I understand how you would rather quantify your risk right off the bat rather than selling premium. However a backspread (which is what you are refering to by selling an ITM or ATM and buying an ATM or OTM) is a spread that also plays higher vol........do you think vol will continue to push higher in sugar? I think vol is due for a setback and thats why I did the ratio spread to be short vol and play a pullback in price.

Yesterday I was just trying to buy an auggie 72 hog call for around 1.75 if I could get it done but the pit closed early for the holiday. I think we fill that gap in auggie hogs.......plus we probably trade through the gap and up to around 73. I don't think im going to play this trade with options though.

As far as that ratio spread is concerned I canceled all orders on that spread but it was an auggie 74/70p 1x2........looks like its worth around .55 based on thursday settlement prices in auggie options.

Any thoughts on those hog spreads civera?
 
civera

Tell me what you think about doing an oct 64/70/76p butterfly in hogs? Based on settlement prices that spread is only going to cost around 1.5........although I know settlements can be very different than how they will quote it monday at least its a place to start from...........let me know what you think. Massive range of profit if a trader put on that spread and just let it work itself out.
 
Quote from Cutten:

Don't you find the liquidity a problem? I always got the impression livestock was a bit like lumber - easy to get in, hard to get out (unless you offer a local a huge edge to take your order and flip it to his buddy 2 mins later). Last time I traded hogs was a decade ago and I still cringe at the fills.
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cutten

You are absolutely right about lumber........my dad is a fairly big trader in that market but I think the locals know his orders when they come into the pit so they don't totally screw him.......he as well as myself are big believers that you have to play the markets that are lesser known and traded to make big money.......the reason we think this is because chances are there are less smart people in the lumber,orange juice, feeder cattle, etc markets than say the S&P 500 and T-Bond markets. If there are 1000 traders in lumber and 100,000 in spooz the chances are higher that spooz is going to contain some fairly bright people.......and we don't want to go up against really smart people :D
 
civera

By the way how would I calculate a backspread if it is being done for a credit? Does it change my breakevens at all? Could you provide an example?

Thanks

YT
 
YT

that Oct 64/70/76 p butterfly looks very interesting indeed. Assuming it can get done at 150pts we'd be breaking even at 65.5 and 74.5 - pretty big range. 3x1 reward/risk

the big question is, how do we go ahead and execute it?

my broker usually puts them in as two put spread orders and hopes for the best.

one of these situations where you want to get the position on, but probably would make a big mistake using a market order no? or not?

I wonder if one puts a limit order on just 1 butterfly spread if you really even get someone to pay attention to the order. When you mention your trades , what size are you trading? I'm a 1-3 lotter.
 
On the August Hog 74/70 1*2 put backspread


74 put settled at 415 pts

70 put settled at 180 pts


From what I understand you are buying the 74 put and selling two 70 puts for a net debit of 55 pts right. You've given yourself a range of 73.45 - 66.55 to profit.

I just don't like having the extra short 70 put exposure out there.

If I took the other side of the trade my max risk would be 345 pts and I would only start making money on a move below 66.55 -again pretty far from mkt prices and thus necessitating a big spike in volatility to be profitable. But, if the market stays where it is and drifts higher and my view is entirely wrong, I pocket 55 pts.

For a 345 pt max loss, why not just buy the 74 put outright then at 415 pts and have a breakeven of 69.85? I could listen to that argument, but, I feel I'd be arrogant just "spending premium" on a pure speculative view, with no real edge.

Not sure I made sense
 
civera

When I mentioned the backspread I was actually talking about dec cotton options........do you know how I would calculate a 72/64p backspread? Its done for a credit of roughly .90 I believe. Thats my biggest problem how does doing a spread for a credit change my breakeven and pnl calculations? The only experience I have had with selling premium is in short straddles/strangles, naked calls and puts, and selling verticals. I have no idea how I would calculate a butterfly, backspread, ratio, etc when done for a credit?

Any help you can give me would be great man!

As far as that spread.......I have yet to price any butterflies in hogs and my hog broker is a real asshole to be honest! However when I quoted that august 74/70p ratio spread in hogs I believe it was a .30 spread or so. So they shouldn't totally screw us on that spread but you never know. I never have sent an order at the market in options (I don't trust those fuckers). I usually always try to find out which way the locals are leaning and then split the bid/offer if at all possible. My size generally depends on what stratagy I am doing......but usually 5-10.

Any thoughts on other markets out there?
 
i was filled on some short selling of live cattle augie 96 puts relatively easy today. Most of my hosing on bid asks comes from the NY softs. The meats and grains are generally pretty decent in volume.
 
im long auggie hogs and looking to add length per recomendation of a smart guy :) my aug oct spread might be turning, if corn goes short guys put these on with a vengeance.
 
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