Ag talk ???

Watching Ag program on TV,talked about "buying puts". ????

If you buy two you would have a "put Put" wouldnt that be an old John Deere?

(quoted from post at 23:16:36 02/15/15) Watching Ag program on TV,talked about "buying puts". ????

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"Put" and "call" are terms used in trading in future options on the commodity board. Be low is a website that explains these terms.

http://futures.tradingcharts.com/glossary/a-c.html

Trading in options is safer than playing the futures. If you guess wrong when buying an option you only lose your purchase money. If you guess wrong on a futures contract you would not only lose you purchase money, but will have to pay the margin too.

"In Puts" like seed and herbicide mabe.

I have tried to understand it but just never can wrap
my brain around it.

lfure has it right. In futures trading of options you have put and calls.

Puts gain value when the marketed goes down in value during the contract term.

Calls gain value when the market goes UP in value over the contract term.

So right now with the grain market price falling for most common crops you would buy a Put to offset the decreased value of the actual commodity.

The advantage of puts and calls over actually trading the futures of things, buying short or long, is that you loss is limited to the cost of the put or call when you place it.

An example of a put in the corn market is:
(This is a made up trade. Just meant to show how the transaction works)

Strike price of $3 per bushel
Term of the option: July 2015 to Jan. 2016
Cost of the put: $.50 per bushel

SO if the market price of corn on the CBT goes under $3 then the option/put starts to be worth money. So to break even the market would have to go under $2.50 on a day between July 2015 and Jan.2016. So lets assume the market drops to $2.25 on Nov. 15th, 2015. You would exercise your option on that day and get paid $.75 per each bushel of your contract bushels. So after your option cost you would have made $.25 profit. So you in effect put a $2.50 "floor" under your contracted bushels. This option works best for future sold grain.

IF you think the market MAY raise after you cash sell some grain then you would buy a call. Then if the market takes off, like it did a few years ago, you can profit from it even after you have sold your actual crop.

The trick is to buy options that are affordable but will still protect you if the market drops dramatically. Trying to protect it right to the current price is very costly.

If your going to try using some options in your marketing plan then puts and calls are a safer way to start. Your losses are limited.

If you actually sell/or buy long or short futures than you could be on the hook for margin calls if the market turns wrong. An example of this would be having a short sale with a $7 price on soybeans. Then the market goes to $15 you would have to pay the $8 in margin calls. This is how many people lose big in the market.

I personally know one family that lost $2.5 million on cattle futures about ten years ago. They had to sell all their equipment and rent the farms out to cover the losses.

One thing to remember is to never trade in a commodity your not familiar with. I know a guy who bought a sugar contract and didn't sell the contract before it matured. He had to take possession of a lot of sugar he just purchased. He had to scramble around finding a buyer for his sugar. He got rid of it all and broke even on the whole thing. But on the other hand he did buy a new tractor with proceeds from some pork belly contracts he traded in. My point is if you know what drives the price of any commodity that is what you should trade in.

LOL...that is what I was thinking.

If you like spending money on insurance, you will like options. The worst thing is options do not follow the board, so the spread will bite you. The best way is to sell options and if they expire, deliver the gran or whatever.