Trade Description
Sell one February Live Cattle 97 put and sell one February Live Cattle 97 call.  On the same ticket buy 4 February Live Cattle 93 puts and buy 4 February Live Cattle 101 calls for a total spread credit of approximately 1.20 ($480).  Margin is approximately $500 but can fluctuate as high as the max risk which is $1,120.  Options expire on February 4th, 2006.  Market is intended to be at or around 97 - please adjust strikes accordingly to center around the market.

Explanation
The cattle market has seen a major rally ensue as delays in US beef exports to South Korea & Japan have pushed cash prices, and in turn futures prices, to fresh multi-year highs and near all time highs for the first time since they were set in 2003.  This suggests that the market is either setting the stage to establish fresh all time highs or offer a major multi-year top.  While I remain fundamentally bearish this market I can look at the current technical setup and see that the most predictable aspect is pending volatility.  This trade offers a credit spread that profits on a move at or prior to expiration above 101.92 or below 92.07

Profit Scenarios
Max profit is unlimited and occurs in two places.  Profit is $1,200 per full point above 101.92 or below 92.07.  Time value increases profitability as the market nears either side.  Profit also occurs at expiration, assuming an entry credit of $480 inside the spread.  This means profit is $40 per .10 above 95.80 to 97.00 and below 98.20 to 97.00.

Risk Scenarios
Max risk is the $1,600 minus the credit received on the trade (if $480 is the credit received then the max loss is $1,600 ? $480 = $1,120).  Max loss occurs at expiration with the market at exactly 93 or exactly 101.  Loss is reduced by $400 per full point below 101 to 98.20 (breakeven) and above 93 to 95.80 (breakeven).

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.