My chart of the day is July lean hogs. The double bottom in the last 48 hours stands out. The low today, May 27, was 100.75 and last Friday's low was 100.75. Some analysts speculated that hogs would continue to sell off if prices did not hold Friday's low. However, prices did hold Friday's low of 100.75. 

The Commodity Futures Commission (CFTC)Commitment of Traders data showed that managed money traders increased their net longs by more than 10,600 contracts to a new three-month high. This action could continue to be a catalyst for higher prices, in my opinion.

One futures strategy is to buy July lean hogs at today's settlement price of 102.37. Define your risk by selling July lean hog contracts at 102.37 stop GTC. That risk is about $700 per contract – very conservative, in my opinion. If and when the trade works, you can move your trailing stop. My objective for this trade is 106 even. 

An options strategy is to sell July lean hogs 96 put (it is 0.800) and with that premium brought into your account, buy the October lean hog 100 call (it is 0.800). The put you are selling in July is paying for the buy of the call in October. July lean hog options expire July 15. October lean hog options expire October 14. This is a simple options strategy. Let time-decay erode in the July put that you sell. Look for October lean hogs to get above 90 even.

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The two charts here include a daily chart that went down and filled the gap on May 12 at 101.175. Many times markets go down and fill gaps and then rally back. The other chart is an 8-hour July lean hog chart which shows the momentum and trend going up. 

Stephen Davis
Senior Market Strategist 
Walsh Trading

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