1. 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

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

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

4. = +
Basis
Futures Price
Price

5. $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

6. = +
Basis
Futures Price
Price
$4.60
$5.10
-$0.50

7. = +
Basis
Futures Price
Price
$4.60
$5.00
-$0.40

8. = +
Basis
Futures Price
$4.50
Forward Contract
$5.00
-$0.50

9. = +
Basis
Futures Price
$4.60
Forward Contract
$5.00
-$0.40

10. = +
Basis
Futures Price
$4.60
Forward Contract
$5.10
-$0.50

11. -$0.50 $5.00 $4.50 = + Futures Contract Futures Price Basis
Forward Contract
Futures Contract
-$0.50
$5.00

12. -$0.50 $5.10 $4.60 = + Futures Contract Futures Price Basis
Forward Contract
Futures Contract
-$0.50
$5.10

13. -$0.40 $5.00 $4.60 = + Futures Contract Futures Price Basis
Forward Contract
Futures Contract
-$0.40
$5.00

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

15. -$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

16. $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:
Sold:
$4.20
Sell $5.00
@ $0.50
Put Options

17. $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:
Sold:
$4.70
@ $0.00
Put Options

18. -$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

19. $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:
Sold:
$4.20
Call Options

20. $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:
Sold:
$4.70
Call Options

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