The Marketing Puzzle = + Kim Anderson

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Presentation transcript:

The Marketing Puzzle = + Kim Anderson Futures Price Futures Contract Put Options Basis + Forward Contract Call Options Cash Price The Marketing Puzzle Kim Anderson Cooperative Extension Crop Marketing Specialist Oklahoma State University

+ = Call Options Forward Contract Futures Price Put Options Basis Futures Contract Price =

= + Futures Price Price Basis Call Options Put Options Forward Contract Futures Contract Call Options Put Options

= + Basis Futures Price Price

$5.00 -$0.50 $4.50 = + Price KC Contract Local Cash – KC contract Basis Futures Price Price $4.50 $5.00 -$0.50 Price KC Contract Local Cash – KC contract

= + Basis Futures Price Price $4.60 $5.10 -$0.50

= + Basis Futures Price Price $4.60 $5.00 -$0.40

= + Basis Futures Price $4.50 Forward Contract $5.00 -$0.50

= + Basis Futures Price $4.60 Forward Contract $5.00 -$0.40

= + Basis Futures Price $4.60 Forward Contract $5.10 -$0.50

-$0.50 $5.00 $4.50 = + Futures Contract Futures Price Basis Forward Contract Futures Contract -$0.50 $5.00

-$0.50 $5.10 $4.60 = + Futures Contract Futures Price Basis Forward Contract Futures Contract -$0.50 $5.10

-$0.40 $5.00 $4.60 = + Futures Contract Futures Price Basis Forward Contract Futures Contract -$0.40 $5.00

Expected Hedge: April: Sold KC July @ $5.00 Expected Price w/ -$0.40  $4.60 June: BOT KC July @ $4.50 Cash Price: $4.50 - $0.40 = $4.10 Return from Hedge: Sold KC July @ $5.00 BOT KC July @ $4.50 Net from futures $0.50 Net Price Received: $4.10 + $0.50 = $4.60

-$0.40 KC July $5.00 Minimum Price Buy $5.00 @ $0.40 = + Basis Futures Price -$0.40 Forward Contract Futures Contract KC July $5.00 Minimum Price Put Strike Price: $5.00 Expected Basis: -$0.40 Premium: -$0.40 $4.20 Buy $5.00 @ $0.40 Put Options

$4.20 -$0.40 $4.10 KC July $4.50 Cash Price: $4.10 Sell $5.00 = + Basis Futures Price -$0.40 $4.10 $4.20 Forward Contract Futures Contract KC July $4.50 Cash Price: $4.10 BOT: -0.40 Sold: 0.50 $4.20 Sell $5.00 @ $0.50 Put Options

$4.70 -$0.40 $5.10 KC July $5.50 Cash Price: $5.10 BOT: -0.40 = + Basis Futures Price -$0.40 $5.10 $4.70 Forward Contract Futures Contract KC July $5.50 Cash Price: $5.10 BOT: -0.40 Sold: 0.00 $4.70 @ $0.00 Put Options

-$0.40 KC July $5.00 $4.60 Buy $5.00 @ $0.40 Minimum Price $4.20 = + Basis Futures Price -$0.40 $4.20 Forward Contract Futures Contract KC July $5.00 $4.60 Buy $5.00 @ $0.40 Minimum Price $4.20 $4.60-$0.40 Call Options

$4.20 KC July $4.50 $4.60 Sell $5.00 @ $0.00 FC Price: $4.60 = + Basis Futures Price $4.20 $4.20 Forward Contract Futures Contract KC July $4.50 $4.60 Sell $5.00 @ $0.00 FC Price: $4.60 BOT: -0.40 Sold: 0.00 $4.20 Call Options

$4.20 $4.70 KC July $5.50 $4.60 Sell $5.00 @ $0.50 FC Price: $4.60 = + Basis Futures Price $4.20 $4.70 Forward Contract Futures Contract KC July $5.50 $4.60 Sell $5.00 @ $0.50 FC Price: $4.60 BOT: -0.40 Sold: 0.50 $4.70 Call Options

= + Futures Price Price Basis Call Options Put Options Forward Contract Futures Contract Call Options Put Options