Document Type

Article

Publication Date

7-15-1985

Keywords

agricultural economics, commodities

Abstract

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.

Publisher

Department of Economics, South Dakota State University

Series Number

85-8

Number of Pages

22

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