This question is asking you to hedge using options. Involving the feeder cattle markets. The first question is asking you to hedge with options in the perspective of a cow-calf rancher that is needing to sell feeder cattle. The second part is asking you to hedge with options in the prospective of a feedlot operator needing to buy feeder cattle.

Feeder Cattle - need to sell (cow-calf rancher) A. Objectives: What type of outlook would cause this producer to buy a Put? Do you need a Performance Bond ? (yeso) B. Strategy: Buy a _Nov (month) 166 (strike) Put for $6.00/cwt (premium) Floor Or Ceiling (Highlight) Strike Price I I - Premium +/- Basis __+2.00 = Minimum Price C. Results: (assume basis ends at $2 over, as predicted) Find the cash prices, the gain or loss from purchasing the put at each price level, and what the producer's net prices would be at each level. If Cash/Futures Put Net Expire at: Gain or Loss Price /140 /166 180 Feeder Cattle - need to buy (feedlot operator) A. Objectives: What type of outlook would cause this producer to buy a Call? Do you need a Performance Bond Strategy: B. (yeso) Buy a_Nov (month) 166 (strike) Call for _$5.70/cwt_ (premium) Floor: Ceiling: Strike Price + Premium I +/- Basis __+2.00 = Maximum Price c. Results: (assume basis ends at $2 over, as predicted) Find the cash prices, the gain or loss from purchasing the put at each price level, and what the producer's net prices would be at each level. If Cash/Futures Expire at: Call Strike Gain or Loss Net Price 140 /166 180 Feeder Cattle - need to sell (cow-calf rancher) A. Objectives: What type of outlook would cause this producer to buy a Put? Do you need a Performance Bond ? (yeso) B. Strategy: Buy a _Nov (month) 166 (strike) Put for $6.00/cwt (premium) Floor Or Ceiling (Highlight) Strike Price I I - Premium +/- Basis __+2.00 = Minimum Price C. Results: (assume basis ends at $2 over, as predicted) Find the cash prices, the gain or loss from purchasing the put at each price level, and what the producer's net prices would be at each level. If Cash/Futures Put Net Expire at: Gain or Loss Price /140 /166 180 Feeder Cattle - need to buy (feedlot operator) A. Objectives: What type of outlook would cause this producer to buy a Call? Do you need a Performance Bond Strategy: B. (yeso) Buy a_Nov (month) 166 (strike) Call for _$5.70/cwt_ (premium) Floor: Ceiling: Strike Price + Premium I +/- Basis __+2.00 = Maximum Price c. Results: (assume basis ends at $2 over, as predicted) Find the cash prices, the gain or loss from purchasing the put at each price level, and what the producer's net prices would be at each level. If Cash/Futures Expire at: Call Strike Gain or Loss Net Price 140 /166 180