An analysis of live cattle option hedging strategies

Options on cattle futures have expanded the realm of alternative marketing strategies available to cattle feeders. This study utilized actual feedlot data to compare the return distributions from 31 separate fed cattle marketing strategies using cash, futures, put option, and call option markets. The results indicate that different strategies are preferred depending upon the risk preferences of the cattle feeder and the length of the feeding period. In general, over the 1980 through 1985 period, cash, hedging, and in-the-money put option purchases dominated spread and fence strategies for risk averse agents.