Proof mathematically that marketing works

[farmaholic]

Hey Zeus hopper you made me look. I may have been wrong but the $490 put was $25.

$24.90 for the call, am I reading this right (Nov).

[charliep]

Not unusual that an at the money put/call would have similar premiums. A put is insurance against lower prices. You could use it if you want to protect against lower prices (if they occur). A call is insurance that allows you to participate in higher prices. You could use it if you have forward priced canola already and maybe nervous about your production/a potential payout if you can't fill the contract and prices have rallied during the summer.

Likely know already but just a reminder what tools like options are meant to accomplish. Options are not an outcome - they are tool.

[farmaholic]

Thanks Charlie.

[cottonpicken]

I would argue calls make the most sence for farmers. If your naked and have forward sold(nothing to cover the position) and something happens and you have to cover at god knows what with no income that sting would hurt. The put side in itself is gambling of course it all is but the pain of losing a few bucks is not as bad if you have a normal crop.

[charliep]

cottonpicken,

I suspect we have had the discussion before with both of us having a different perspective on first management. Strangely, I think I could sleep at night having locked in $10/bu and the market today at $11 or whatever it ends up.

I note the beginning of the thread likely related to how you average your sales through the year - I suspect no one sells their crop all at once. The other issue is how you modify what you do to reflect changing circumstances or whether you just accept your plan. The farmer who sold their first 10 bu/acre at $10/bu and is looking at 20 bu yield (maybe not enough to trigger crop insurance will know this pain. The real pain is difference between their planned yield (maybe 40 bu/acre) and what they bin this fall.

[charliep]

perspective on risk management.