KSU-Option strategies.

xls -- A spreadsheet program to compare alternative marketing strategies that

use the futures and options markets.

Version -- 12.12.13

Inputs vs Calculated Values

In the Strategies tab all blue numbers are inputs and all other numbers are calculated from these inputs. The spreadsheet
automatically recalculates every time an additional input is entered. Thus, it is important to wait until all data have been entered and
reviewed before interpreting any of the calculated results (i.e., black numbers).

Strategies
In the Strategies tab, four alternative marketing strategies can be compared side-by-side at one time. These strategies can use
futures, options, or a combination of the two. It is important to note that because these strategies only consider futures and options
basis risk still exists. Thus, the calculated expected net selling (buying) prices are still subject to changes in basis from the expeted
value entered. It is also important to note that options strategies that involve selling options (either puts or calls) requires margin money
and also have potentially unlimited risk; whereas, simply purchasing options has limited risk (i.e., the cost of premium).

Developed by:
Kevin C. Dhuyvetter
Farm Management Specialist
Agricultural Economics

voice: (785) 532-3527

FAX: (785) 532-6925
email: [email protected]
website: www.agmanager.info

Copyright 2009 by Dhuyvetter. All rights reserved

KSU-Landbuy.xls -- Developed by Terry L. Kastens and Kevin C. Dhuyvetter

Kansas State University Agricultural Economists
Comparison of Futures and Options Market Strategies Comparison of Futures and Options Market Strategies
Buying or selling (buy=1, sell=2) 2 Buying or selling (buy=1, sell=2) 1
Futures price at time of trade $6.97 Futures and Options Gain/Loss Futures price at time of trade $4.45 Futures and Options Gain/Loss
Expected basis -$0.50 Futures Hedge & Expected basis $0.00 Futures Window 2 Puts and
Interval for futures price change to consider $0.40 Prices Cash Hedge Put Call Interval for futures price change to consider $0.40 Prices Call Window puts calls
Hedge & $4.97 $0.00 $1.99 $1.48 $1.70 Window 2 Puts and $2.45 -$0.16 -$1.77 -$3.11 $0.04
Strategy Cash Hedge Put Call $5.37 $0.00 $1.59 $1.08 $1.30 Strategy Call Window puts calls $2.85 -$0.16 -$1.37 -$2.32 $0.04
Futures (buy=1, sell=2) 2 2 $5.77 $0.00 $1.19 $0.68 $0.90 Futures (buy=1, sell=2) $3.25 -$0.16 -$0.97 -$1.52 $0.04
Put option strike 1 $6.80 $6.17 $0.00 $0.79 $0.28 $0.50 Put option strike 1 $4.20 $4.00 $4.10 $3.65 -$0.16 -$0.57 -$0.72 $0.04
Premium $0.34 $6.57 $0.00 $0.39 -$0.12 $0.10 Premium $0.13 $0.08 $0.10 $4.05 -$0.16 -$0.17 $0.01 $0.04
Buy=1, Sell=2 1 $6.97 $0.00 -$0.01 -$0.35 -$0.30 Buy=1, Sell=2 2 2 2 $4.45 -$0.16 $0.00 $0.01 -$0.30
Number bought/sold 1 $7.37 $0.00 -$0.41 -$0.35 -$0.65 Number bought/sold 1 2 1 $4.85 -$0.02 $0.04 $0.05 $0.00
Put option strike 2 $7.77 $0.00 -$0.81 -$0.35 -$0.65 Put option strike 2 $4.50 $5.25 $0.38 $0.44 $0.45 $0.04
Premium $8.17 $0.00 -$1.21 -$0.35 -$0.65 Premium $0.27 $5.65 $0.78 $0.84 $0.85 $0.04
Buy=1, Sell=2 $8.57 $0.00 -$1.61 -$0.35 -$0.65 Buy=1, Sell=2 1 $6.05 $1.18 $1.24 $1.25 $0.04
Number bought/sold $8.97 $0.00 -$2.01 -$0.35 -$0.65 Number bought/sold 1 $6.45 $1.58 $1.64 $1.65 $0.04
Call option strike 1 $7.30 Call option strike 1 $4.70 $4.80 $4.80 $4.50
Premium $0.29 Premium $0.15 $0.12 $0.12 $0.22
Buy=1, Sell=2 1 Expected Net Selling Price Buy=1, Sell=2 1 1 1 1 Expected Net Buying Price
Number bought/sold 1 Futures Hedge & Number bought/sold 1 1 1 1 Futures Window 2 Puts and
Call option strike 2 Prices Cash Hedge Put Call Call option strike 2 $4.90 Prices Call Window puts calls
Premium $4.97 $4.47 $6.46 $5.95 $6.16 Premium $0.09 $2.45 $2.61 $4.22 $5.56 $2.41
Buy=1, Sell=2 $5.37 $4.87 $6.46 $5.95 $6.16 Buy=1, Sell=2 2 $2.85 $3.01 $4.22 $5.17 $2.81
Number bought/sold $5.77 $5.27 $6.46 $5.95 $6.16 Number bought/sold 1 $3.25 $3.41 $4.22 $4.77 $3.21
$6.17 $5.67 $6.46 $5.94 $6.16 $3.65 $3.81 $4.22 $4.37 $3.61
Commission to buy AND sell futures, $/unit (bu, cwt) $0.006 $6.57 $6.07 $6.46 $5.94 $6.16 Commission to buy AND sell futures, $/unit (bu, cwt) $0.006 $4.05 $4.21 $4.22 $4.05 $4.01
Option comission to buy OR sell an option, $/unit $0.010 $6.97 $6.47 $6.46 $6.12 $6.16 Option comission to buy OR sell an option, $/unit $0.010 $4.45 $4.61 $4.46 $4.45 $4.75
$7.37 $6.87 $6.46 $6.52 $6.22 $4.85 $4.87 $4.81 $4.81 $4.85
Total premium paid $0.000 $0.000 $0.335 $0.288 $7.77 $7.27 $6.46 $6.92 $6.62 Total premium paid $0.150 $0.115 $0.115 $0.490 $5.25 $4.87 $4.81 $4.81 $5.21
Total premium received $0.000 $0.000 $0.000 $0.000 $8.17 $7.67 $6.46 $7.32 $7.02 Total premium received $0.000 $0.130 $0.150 $0.191 $5.65 $4.87 $4.81 $4.81 $5.61
Total commission $0.000 $0.006 $0.010 $0.016 $8.57 $8.07 $6.46 $7.72 $7.42 Total commission $0.010 $0.020 $0.030 $0.040 $6.05 $4.87 $4.81 $4.81 $6.01
Net cost per unit $0.000 $0.006 $0.345 $0.304 $8.97 $8.47 $6.46 $8.12 $7.82 Net cost per unit $0.160 $0.005 -$0.005 $0.339 $6.45 $4.87 $4.81 $4.81 $6.41
Expected Net Selling Price

Expected Net Selling Price

$9.00 Comparison of Various Marketing Strategies $7.00 Comparison of Various Marketing Strategies

Cash
Hedge $6.00
$8.00
Put
Hedge & Call
$5.00
$7.00

$4.00

$6.00

$3.00

$5.00 Call
$2.00
Window
Window 2 puts
$4.00
$1.00 Puts and calls

$3.00 $0.00
$4.97 $5.37 $5.77 $6.17 $6.57 $6.97 $7.37 $7.77 $8.17 $8.57 $8.97 $2.45 $2.85 $3.25 $3.65 $4.05 $4.45 $4.85 $5.25 $5.65 $6.05 $6.45
Futures Price at Expiration Futures Price at Expiration

817324612.xls
Developed by Kevin C. Dhuyvetter
Extension Agricultural Economist, Kansas State University
Links to market information
Chicago Mercantile Exchange (CME) http://www.cme.com
Chicagot Board of Trade (CBOT) http://www.cbot.com/
Kansas City Board of Trade (KCBT) http://www.kcbt.com/

Example corn, soybean meal, and wheat premiums (from DTN)