This seasonal trend has played out for 14 of the last 15 years and takes place from November 27th through December 9th. The average pullback has been roughly 3.00.
We've been working to position clients short February live cattle ahead of the seasonal that starts next week. There are three ways to consider playing the bearish trend.
1. Short futures with a stop. Deciding where to short and where to place the start will vary from trader to trader, as each have a different risk profile and risk tolerance.
2. Buy a put. We've been working with clients to buy the January 155 put options. The January options have about a month and a half of time left, which gives us plenty of time on the seasonal. The January options trade off the February futures. The risk on this trade is limited to the price paid for the option.
3. Use more complex options strategies. If you're curious about other ways to get exposure via different options strategies, contact our trade desk: 312-837-3938 or email [email protected]
Below is a historical chart of February live cattle. We've noted the beginning of the seasonal trend with the red arrow and the end of the seasonal with the green arrow.
Below is a daily chart of February live cattle. We are at the upper end of the risk range which gives us a pretty clear line in the sand for risk. A breakout above resistance and you may consider neutralizing a bearish position. The market rejected the upper end this morning, despite a higher cash trade. We often refer to this as a fundamental rejection. The potential target for exiting a bearish position would be in the trendline support zone around 153. This also happens to be in line with the average pullback during this seasonal.
Below is a year-by-year breakdown of the historical performance of this seasonal trend. We've outlined the one outlier year with red. At the bottom we've outlined the average profit and loss for the trend.
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