I am trying to understand the feeder cattle live cattle spread chart. The spread price for Nov FC to Apr LC spread is around 64.00. Your chart showing -52k ...I don't understand...Can you explain.
Because the feeder cattle contract is for 50,000 pounds and the live cattle contract only 40,000, MRCI calculates and plots spreads between them as the differemce in their contract equity at current prices. This is not as convenient as comparing price/price --- which can offer a general idea of spread movement, but it does accurately tell one how price changes can affect one's account. Thus, the spread calculation is as follows: With yesterday's close for FCX at 257.65 cents/pound, or $2.5765, and that for LCJ at 192.67, or $1.9267 ---
LCJ = $1.9267/pound x 40,000 pounds = $ 77,068
FCX = $2.5765/pound x 50,000 pounds = 128,825
LCJ/FCX spread = -$ 51,757
-Jerry Toepke
