Grand Rapids, MI | gsi - 9/1/2010 20:30
I know nothing about options so I may not word this correctly. As an example, if you wanted to sell grain for March delivery, instead of storing it couldn't you deliver it in the fall and defer payment until the first of the year and use options as price protection instead of building more storage, more bins to clean and maintain, depreciation on the bins etc...Thanks
The simple answer....no
Now the long economist explanation :-)
When you think of grain pricing you need to think like the pro's do. There are three basic components that you need to manage when marketing grain.
1. The general price level of the market. This is pure systemic risk. This is the component that options are designed for. Options, if used well, can be a great way to manage one's systemic risk.
2. The basis level. This is something that options cannot address. You must have the physical grain to gain or lose in this component.
3. The market spread or carry. This would be the difference between selling based off the Dec futures vs the July futures for corn for example. You can trade spreads on the board to bet on the change in carry, but again you cannot gain from the full underlying carry without having the physical inventory.
The best marketers learn to separate #1 from #2 and #3. You don't need to own the commodity to do whatever you want relative to setting component #1, basis and spread though requires physically owning the commodity. |
Can you use options instead of building more tanks?
