Cattle Crush Spread
Yesterday the blog entered a hypothetical ‘add-on’ trade on the long side of the August-April-May 6:3:2 cattle crush spread. The position was entered at -$350 (premium the sum of the feeders and corn) by purchasing six 40,000 lb. August 2015 live cattle contracts at 139.125 (total value of $333,900), selling three 50,000 lb. April 2015 feeder contracts at 197.05 (total value of $295,575), and selling two 5,000 bushel May 2015 corn contracts at $3.86 3/4 (total value of $38,675).
This new ‘add-on’ position will be will be liquidated on a two-consecutive day close below -$10k ((premium the sum of the feeders and corn).
Also, we are still working another ‘add-on’ trade to enter a third August-April-May 6:3:2 cattle crush spread on a close above +$6k (premium live cattle). This next ‘add-on’ position will be liquidated on a two-consecutive day close $500 below the lowest closing price that follows the February 6th peak. Once we get this one, our plates will be pretty full. We will have tripled the original position size at that point so we will become laser focused on managing risk and trying to squeeze as much profit out of the trade as possible.