Discussion
This graph shows daily settlement prices for Dec. 03 futures from
about fourteen months out through expiration. The blue and pink
lines show the premium value associated with 58-cent put and call
options, respectively. This was a year when the normal spring seasonal
pattern was evident, and the outlook suggested a 50-60 cent trading
range. Then an unexpected September surge in demand by China caused
an 80 cent run. This sort of event is totally unpredictable,
and can only be planned for by purchasing inexpensive insurance
against losing an opportunity like this. Your marketing
plan must be flexible enough to protect you from losing such an
opportunity. One very basic way to implement such an insurance
policy would be to purchase call options in the fall which would
increase in value (e.g., the pink line) if futures were to rise.
Purchasing a 58 cent call option in late August would only have
cost two cents/lb in premium.
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