You are a feed lot operator. You are looking to fill a lot in January. Based of the futures prices for finished cattle, feed costs you can lock in, and a standard yardage fee, purchasing feeder cattle at the current price would ensure profit based on your historic rates of gain.

B) Strategy:

Buy a Jan 179 Put for $3.75/cwt

Floor AND Ceiling - Calculate your minimum price

Floor Ceiling

Strike Price: _____ ______

-Premium: _____ ______

+/- Basis: +10.00

= max. price _____ ______

C) Results: (assume basis ends at +$10 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: Put gain or loss = Net price

___/160 _______ ________

____/179 _______ ________

____/200 _______ ________