Understanding OptionsUnderstanding Options

Options are probably the most useful, but least understood, marketing tool that can be used by grain producers. By definition, an option is the right, but not the obligation to buy or sell futures at a specific price on or before expiration. There are two types of options, puts and calls. An option to buy a futures contract is known as a call option, while an option to sell futures is a put option. Like futures, they are 5,000-bushel contracts that are traded on the Chicago Board of Trade. Options should be thought of as insurance against higher or lower future grain market prices.