Live Cattle/Lean Hog Spread: Liquidate April and Monitor December

Exit Stage Right

The IMC blog is holding a short position in the April live cattle/lean hog (x2) spread entered at the equivalent of -3.10 (premium hogs).  The trade was initiated on October 12th and rolled several times.

The April spread is trading around -1.50 (premium hogs) this morning and it needs to be liquidated as the contracts are about to expire.  Unfortunately, the June spread is trading around -32.00 and the August spread is trading around -38.00.  Due to the significant price discount of the summer spreads, it does not appear to be a lucrative trade.

December Live Cattle Lean Hog (x2) spread daily

December Live Cattle Lean Hog (x2) spread daily

The December live cattle/lean hog (x2) spread is trading at a more reasonable price of -11.50 (premium hogs), but it recently broke out to multi-month highs.  Therefore, our plan is to liquidate the April spread and wait patiently to see if a short sale setup might materialize in the December spread.

Trade Strategy:

On the hypothetical short April live cattle/lean hog (x2) spread entered at -3.10 (premium hogs), exit at the market-on-close on Wednesday, April 12th.

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