• Market:  April 2006 Live Cattle (LCJ6) & June 2006 Live Cattle (LCM6)
• Tick value: .025point = $10.00 or .10 = $40.00 
• Option Expiration: 04/07/2006 & 06/02/2006    
• Trade Description: Bear Put Calendar Spread
• Max Risk: $2520.00
• Max Profit:  $2280.00
• Risk Reward ratio 1:1.2

Buy one April Live Cattle (LCJ6) 81.00 put and one June Live Cattle (LCM6) 82.00 put, sell one April Live Cattle (LCM6) 87.00 put, sell one June Live Cattle (LCM6) 78.00 put, for a combined cost of .30 points ($120) or less to open a position.

Technical/Fundamental Explanation
Live Cattle has finally found some short term support here above 87.00 for the April contract. The idea here is to take advantage of a probable bounce and consolidation over the next few weeks and pick up a longer term bear position with very little cost or margin. These options have the ability to offset the majority of the risk associated with the trade by being both short and long the market in different months for the first 5 weeks of the trade.

Profit Goal
Max profit is $2280.00. This is achieved with the April portion of the spread (expires 04/07/2006) expires with the market trading above 87.00 (thereby worthless) and with the market trading below 78.00 when the June portion of the spread (expires 06/02/2006) expires.

Risk Analysis
Assuming a .30 fill, max risk is 6.30 or ($2540) and occurs with the market trading below 81.00 when the April portion of the spread expires 04/07/2006. However that analysis doesn’t take into account that the position would still be left with the June Bear Put Spread that would have its own value.* At that point if we chose, that value could be used to offset the some of the loss at that time.

Disclaimer
Past performance is not indicative of future results. Trading futures and options is not suitable for everyone. There is a substantial risk of loss in trading futures and options.

Matt Odom is the Managing Partner and Energy Analyst and Derek Frey is Head Trader at Odom & Frey Futures & Options.