Live Cattle Futures have hit historic highs. Yes, we know the fundamentals: Cattle ranchers have been cutting their head counts in recent years due to dropping demand and now there is a shortage of live cattle, hence the spike in prices. In fact, there hasn’t been this few heads of cattle since the 1950s!
Despite all that, we don’t trade on fundamentals and looking at the technicals in the Daily and Weekly Live Cattle Futures charts below, you can see how the current prices are unprecedented. What goes up must come down, at least correcting to the 50% level. Therefore, with the 1-2-3 Top Formation shown in the April 2014 Live Cattle chart below, we have shorted the Live Cattle Futures market when prices broke below the #2 point of 139.45. We purchased a 138.0 April Put option for $600.00 which expires 4/4/2014.
On the Daily Live Cattle chart below, the 50% Retracement is 137.64, which is why we bought the 138.0 Put Option, in case we are limited on the downside by this retracement level. HOWEVER, on the Weekly Live Cattle chart (below) the 50% Retracement is 133.26 which gives us great downside profit potential.