Lean Hogs call options give a buyer exposure to rising futures prices. Follow one contract from premium paid to its result at expiration.
How lean hogs options work
The examples use options on lean hogs futures. A call gives the right to enter a long futures position at the strike price. A put gives the right to enter a short futures position at that price.
A hog producer may use puts against falling selling prices. Lean-hog options do not directly hedge the price of bacon or an individual pork cut.
The cost of one option
One CME contract represents 40,000 pounds. The exchange quotes this product in cents per pound; the examples convert those quotes into dollars. A premium of 4 cents equals $0.04 per pound. At a premium of $0.04 per pound, one option costs $1,600 ($0.04 × 40,000).
Assume the futures price and strike are both $0.8 per pound. The call and put premiums are each $0.04 for comparison, not current quotes. Results below are at expiration, before fees, with any futures position from exercise immediately closed at the stated price.
Buying lean hogs calls
Suppose you expect lean hogs prices to rise and buy one $0.8 call for $1,600.
If the underlying future reaches $0.92 per pound at expiration, buying at $0.8 gives an advantage of $0.12 per pound. Across 40,000 units, that is $4,800. After the premium, your net profit is $3,200.
At $0.8 or below, the call expires worthless and the loss is $1,600. Breakeven is $0.84 per pound: strike plus premium. At $0.82, the call has value but still loses $800 after its cost.
Before expiration
An option can be sold to close before expiration when a market is available. Its price then includes the effect of remaining time and implied volatility, so an earlier trade need not break even at the expiration price calculated above.
The purchased option can lose its whole premium. Exercise can create a futures position requiring margin and exposing you to further gains or losses. An uncovered seller can lose more than the premium received.
Lean Hogs price chart
Capital.com Lean Hogs CFD reference price. This broker CFD (contract for difference) is a market reference, not a spot price or an exchange futures contract. Prices and quoting units may differ from the contracts described in this guide. Check the widget timestamp and market status; prices may be delayed.
