Texas/New Mexico Stateline | Using options that far out is going to be horribly expensive due to time value. May $1.80 put is about $10 a cwt. So $5000 for one option. I usually figure around 65 head for one contract, so about $75 a head to lock in $1.90 futures price. I suppose you mean you want to sell an out of the money call to help cheapen up your position? A $2.00 May call is only worth about $3, so that would make you $1500 back. If May futures go above $2 you will have to margin that option. $50 net cost a head to set your floor at $1.80, and top side would be capped at $2.00.
I have been wondering about the exact same strategy for wheat pasture cattle, but have never done that. I have never wrote/sold options in other words.
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Lowest cost feeder cattle hedge?
