1. Advanced Marketing Strategies

2. Selective Hedging Protecting prices when futures is against you Cashing in when futures favor you Increases your overall price when you finally market your product

3. Sell Buy 4 cents 5 cents Sell

4. Options Strategies Many people avoid options because of their cost. Utilizing them with other tools and strategies can lower the cost of the option or increase the final price of your commodity while keeping you protected

5. Fence Buying a Put and Selling a Call –Sets a minimum and a maximum price –Lowers the overall cost –Exposed to risk / margin calls http://www.extension.iastate.edu/agdm/crops/html/a2-69.html

6. Worksheet

8. Fence Minimum Selling Price

10. Fence Maximum Selling Price

12. Fence Cautions Remember, if you’re writing call options and the market goes up, you have margin calls. The increased value of the crop offsets the margin calls. As a seller of the option you do NOT get to choose when it is exercised. It may be exercised on you early.

13. Synthetic Put Forward Contracting or Hedging and later buying a call. If price continues to rally you can cash in on the call Good adjustment strategy in unexpected a rally Works the same as buying a put up front

14. Converting a Fixed Price to a Minimum Price Liquidate your hedge to buy a put Useful in a down market that is turning around –Cash in on profit from hedge –Use profit to lock in minimum price with put –Can gain from an rally in market

15. Example Initiate hedge by selling DEC corn at $4.00 Corn drops to $3.50, buy back DEC corn contract and profit $0.50 Buy $3.50 put for $0.25 –Locks in minimum price of 3.75 3.50 - 0.25 premium + 0.50 profit from hedge –If market rallies you profit from any gain

16. Options not Storage Selling crop at harvest and buying calls. –Gives you a chance to make money on a rally without storage cost. –No downside price risk –Good strategy in a market that does not show a carry.

17. 3.00 3.50 4.50 -0.35 Premium +1.00

18. 3.00 3.50 -0.350.00

19. Convert Minimum Price to Fixed Selling futures after buying a put. –Put locks in a minimum price –Futures (forward contract) locks in market peak Good strategy when rally seems probable but need to lock in cost of production. Use hedge when market reaches target price. If price goes bad can cash in on both

20. Example Buy $3.50 put for $0.25 –Locks in minimum price of 3.25 3.50 - 0.25 premium Market Rallies –Initiate hedge by selling DEC corn at $4.00 Corn drops to $3.00 –Buy back DEC corn contract and profit $1.00 –Exercise Put and profit $0.50

21. Adjusting Minimum Price Purchase new puts as price rallies –Continues to raise your minimum price –If price crashes you may be able to cash in on several puts –Expensive because you are paying out a new premium for each new put.

22. Example Buy $3.50 put for $0.25 –3.50 - 0.25 premium = 3.25 min. price Market Rallies –Buy 4.00 put for 0.30 4.00 – 0.30 – 0.25 = 3.45 minimum price Market Rallies –Buy 4.50 put for 0.20 4.50 – 0.30 – 0.25 -.20 = 3.75 minimum price

23. Improve Price Sell a call and add premium to income. Stable Market Only! Risky Susceptible to Margin Calls