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| The folks on the other side of your transaction "know" what's going to happen because they will "make" it happen (sort of). Given no significant changes the price you pay for the put is 'time value' and as it closer to expiration it loses value. I think it's just the normal ebb and flow of the market that makes it work this way. There will be times when your position will gain in value and often a reason it expires worthless is that the gain is "not enough" and gets passed over like $8 corn or $160 cattle. In markets like these maybe finding an "enough" point is as important as an entry point.
However, where options (and futures) pay more is when something changes - a weather event that can't be ignored (or only ignored long enough for some to exit the market), political policy change (war, embargo, RFS, farm program, crazy regulation - all pigs and cows become redefined as kittens), etc. The event can not be a well known, baked in event therefore plenty of us use options "in hope". Personally, in grains, I see the pretty extreme basis for this time of year as a story brewing. So far all the talk has been about big yields (and all my cash rent landlords have heard), so it feels like we're coming to a point where the board price will concede that the crop isn't quite that big or far more out of position than in the past and possibly react.
The other thing is you'll go through some sort of broker and they will set up the trade and possibly give some 'advice'. You are going to have decide what level you are comfortable with. Consider that if your broker or anyone posting here had it all figured out, they would be doing something else. | |
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Put question
