Trade Description
Buy one Dec. Live Cattle 89 put and sell one Dec. Live Cattle 86 put for a cost of approximately .60 ($240).  Margin and max risk is the cost of the trade.  Options expire on 12/2/2005.

Explanation
A sell the news affect is expected following reports from a safety panel in Japan recommending the possible removal of the ban on Canadian and US beef.  The actual announcement, which was not much of an announcement at all, did not even provide an actual recommendation but rather a bias prior to a final recommendation expected by the end of the year.  The potential release of the ban could take the better part of a year and the market as a whole may take the news as an avenue to place a top on the recent strength in the market.  A 10% plus rally places cattle back near its respective all time highs and begs for an intermediate term bear play that benefits from a great risk to reward ratio while remaining near the current market price.

Profit Scenarios
Assuming a cost of .60 ($240), profit is achieved when the market is below 88.40 at expiration.  Profit is $10 per 2.5 cent move below 88.40 (break even point) at expiration to 86.00 (max profit point, which is $960).  Time value works in your favor with the market near 89, but against you as the market nears 86. 

Risk Scenarios
Max risk is the cost of the trade ($240) and occurs at expiration with the market trading above 89.00.  Loss is reduced by $10 per 2.5 cent tick to 88.40 which is breakeven at expiration.

Disclaimer
There is risk of loss in all commodities trading.  Commissions and fees vary per individual and therefore are not included in profit, cost and risk scenarios.  Please consult a licensed broker before you trade for the first time.  Losses can exceed your account size and/or margin requirements.  Commodities trading can be extremely risky and is not for everyone.  Some option strategies have unlimited risk.  Educate yourself on the risks and rewards of such investing prior to trading.  James Mound Trading Group, or anyone associated with JMTG or moundreport.com, do not guarantee profits or pre-determined loss points, and are not held monetarily responsible for the trading losses of others (clients or otherwise).  Past results are by no means indicative of potential future returns.

James Mound, owner of JMTG Brokerage LLC, MoundReport.com and author of the book 7 Secrets, writes the Weekend Commodities Review Newsletter. Receive your free weekly subscription to the Weekend Review by e-mail. Click here.