agricultural economics, commodities
Agricultural commodity options are based on futures contracts. Producers buying put options are subject to basis risk. Unlike a storage hedge, a put buyer must be concerned with how the basis changes. Eight basis change scenarios are analyzed to indicate why this is true. In addition, the returns to buying a put are contrasted with a storage hedge. Recommendations are made on how a producer might develop a strategy for when to use a put option versus hedging.
Department of Economics, South Dakota State University
Number of Pages
Schmiesing, Brian, "Implications of Basis Changes to Put Option Trading" (1985). Economics Staff Paper Series. 34.