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June 7, 2006 Visit us on the web at www.pfgca.com

LIVE CATTLE --- A short-term bearish play in August Live Cattle. After the big decline into the April low, the recent rally has taken the market into a possible resistance area, and Cattle are still at relatively high prices. Historical seasonal price patterns are negative during most of June. Consider a bearish put option, a trade that has limited risk, with the objective to double the premium. The trading period is only about 2-3 weeks, less than half the time until expiration of these options.
The Cattle market often responds to annual seasonal price patterns, as the production cycle and consumer demand affects the market. After a potentially brief rally into early June due to the beginning of barbecue season, the market then faces heavy supply from the seasonal slaughtering peak in June. Also, demand for heavier meat declines during the heat of summer, when consumers favor lighter meats.
Futures and options in the August Live Cattle contract are actively traded. The trade objective to double the option premium should be achieved if LCQ drops about 300 points from levels, a reasonable objective. Also, the implied volatility in Cattle put options can rise during declines, as producers may purchase options to hedge against price drops before delivery.

Trade history data, courtesy Moore Research. According to average historical data for the last 15 years, the seasonal pattern is bearish for August Live Cattle for most of the month of June.

August Live Cattle, seasonal pattern chart --- courtesy Moore Research, mrci.com
The solid black line is the current market; the blue line going forward is the 15-year historical average.

August Live Cattle, daily chart (CME) --- courtesy FutureSource

THE TRADING PLAN - August Live Cattle - bearish put option:

Buy the August Live Cattle 78 put option near the current price.
Use a limit order. Allow for normal bid/ask slippage.
Note: Strikes can be changed for a more aggressive or conservative trade.

6/6/06 settlement: LCQ 78 put option = 115 points ($460 debit).
August Live Cattle (LCQ) = 80.575
Live Cattle trade at the Chicago Mercantile Exchange (CME). 100 points = $400.
Margin requirement: Entry cost.

Profit objective: $440+ (about double the trade cost, or 110 points gain in the option). If achieved, take gains or exit the first day after a downward close in the option price.

Suggested risk: Risk the premium up to the end of the holding period.

Time limit: Evaluate the trade at the end of the optimal seasonal window on Friday, June 23. If the trade is not profitable, exit. If the trade is profitable, exit after the first downward close in the option price.
August Live Cattle options expire in about 8 weeks, on August 4th. These options are cash-settled like the futures, and expire on the first Friday of the contract month that is a business day.

----- Contact your PFG Broker to discuss a complete trading plan for this opportunity -----

THERE IS RISK OF LOSS IN TRADING FUTURES AND OPTIONS
This publication is intended for information purposes only and should not be construed as a guarantee or implication by or from PFG Inc, or any of its officers, directors, employees, affiliates or other agents that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. All investments are subject to risk that should be considered prior to making investment decisions.