Prepared by Ira Epstein & Company
After a “neutral to bearish” Cattle on Feed report on Friday, 11/14, the live cattle market showed some strength on Monday, especially with regards to the spreads. The bull spreads (long closest in time; short differeds) gained about 20-25 points on the day. With the onset of colder weather and an economically healthy consumer base, I believe the demand for beef will be strong, in conjunction with demand for turkeys going into the holidays.
I continue to recommend long December; short April cattle at the market, using a 150-point stop. Current initial margin required is about $375.
LONG JANUARY/SHORT MAY ORANGE JUICE
This past mild hurricane season, attributed to the El Nino by some meteorologists, was just one of many reasons for the orange crop abundance and consequent low prices. With the onset of time, the threat of frost becomes a concern and usually leads to some price support.
The orange juice market just recently had its strongest gain since August, reaching 84.50 cents a pound. Although the temperature did get cooler in central Florida over the past few days, there appeared to be no real danger of frost. Buying, according to floor sources, stemmed from speculator and fund buying.
I believe the most effective trading strategy now involves: Buying January orange juice; and selling May orange juice at the market. With a margin requirement of $250, I would use a risk factor of $225 (150-point stop) which makes me believe this a very reasonable trade.
At the slightest hint of concern about the equities markets, cliches like “flight to quality” begin rumbling throughout the investment community. I believe the best way to take advantage of such tumultuous conditions is the TED (long T-bill; short Eurodollar) spread.
The TED involves buying U.S. Treasury bills and selling Eurodollars. The TED spread is a spread position of 90-day interest rate instruments guaranteed by the U.S. Treasury versus Eurodollars that are not guaranteed. This is considered to be a quality spread. When quality concerns increase, regardless of the cause or justification, conservative investors shift funds to investments perceived as being safer. Therefore, the T-bills should always carry a premium over the Eurodollars. Margins on this particular spread are $225. I recommend entry at current market levels, and suggest using a stop of 12 points ($300) or greater.
November 17, 1997
Ira Epstein & Company
223 West Jackson, 7th Floor, Chicago, Illinois
Spread Trading
Tiger On Spreads
Consensus National Futures and
Financial On Line Index
Added to the WWW 11-21-97
Last updated on 11-21-97
Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com
