Live Cattle options are option contracts in which the underlying asset is a live cattle futures contract. The holder of a live cattle option possesses the right but not the obligation to assume a long position in the case of a call option or a short position in the case of a put option in the underlying live cattle futures at the strike price.
CME Live Cattle option prices are quoted in dollars and cents per pound and their underlying futures are traded in lots of pounds 18 metric tons of live cattle. Options are divided into two classes - calls and puts.
Live Cattle call options are purchased by traders who are bullish about live cattle prices. Traders who believe that live cattle prices will fall can buy live cattle put options instead.
Buying calls or puts is not the only way to trade options. Option selling is a popular strategy used by many professional option traders. More complex option trading strategies , also known as spreads , can also be constructed by simultaneously buying and selling options. As live cattle options only grant the right but not the obligation to assume the underlying live cattle futures position, potential losses are limited to only the premium paid to purchase the option.
Using options alone, or in combination with futures, a wide range of strategies can be implemented to cater to specific risk profile, investment time horizon, cost consideration and outlook on underlying volatility.
Options have a limited lifespan and are subjected to the effects of time decay. The value of a live cattle option, specifically the time value, gets eroded away as time passes.
However, since trading is a zero sum game, time decay can be turned into an ally if one choose to be a seller of options instead of buying them. Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time Cash dividends issued by stocks have big impact on their option prices.
This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement.
In place of holding the underlying stock in the covered call strategy, the alternative Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. A most common way to do that is to buy stocks on margin Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions.
They are known as "the greeks" Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow Stocks, futures and binary options trading discussed on this website can be considered High-Risk Trading Operations and their execution can be very risky and may result in significant losses or even in a total loss of all funds on your account. You should not risk more than you afford to lose.
Before deciding to trade, you need to ensure that you understand the risks involved taking into account your investment objectives and level of experience. Information on this website is provided strictly for informational and educational purposes only and is not intended as a trading recommendation service. Toggle navigation The Options Guide. Limited Unlimited Loss Potential: The financial products offered by the company carry a high level of risk and can result in the loss of all your funds.
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