Agricultural Commodity Marketing and Risk Management

Agricultural Commodity Marketing and Risk Management
Options Trading Strategies

Limited Risk – Limited Returns Options Strategies
Vertical Bear Call Spread Sell In-The-Money Call and Buy Out-The-Money Call or Sell At-The-Money Call and Buy Out-The-Money Call. Receive Net Premium Maximum loss – Difference between the strike prices less the net premium received. Occurs if futures price is at or above the higher Strike Price at expiration. Maximum profit – Net premium received which is obtained when the futures price is at or below the lower Strike Price at expiration. Positioning Strategies– Sell In-The-Money Option if you anticipate Low Volatility Sell At-The-Money Option if you anticipate High Volatility.

Vertical Bear Call Spread
Gains Long Call Higher Strike Price Underlying Futures Price Short Call Lower Strike Price Losses

Vertical Bear Put Spread Sell Out-Of-The-Money Put and Buy At-The-Money Put or Sell At-The-Money Put and Buy In-The-Money Put. Pay Net Premium Maximum loss – Net Premium paid. Occurs if futures prices trade at or above higher Strike Price at expiration. Maximum profit – Difference between the strike prices less the net premium paid which is obtained when the futures price is at or below the lower Strike Price at expiration. Positioning Strategies– Sell Out-The-Money Option if you anticipate Low Volatility Sell At-The-Money Option if you anticipate High Volatility.

Vertical Bear Put Spread
Gains Long Put Higher Strike Price Underlying Futures Price Short Put Lower Strike Price Losses

Vertical Bull Call Spread Buy At-The-Money Call and Sell Out-The-Money Call or Buy In-The-Money Call and Sell At-The-Money Call. Pay Net Premium Maximum loss –Net premium paid. Occurs if futures price is at or below the lower Strike Price at expiration. Maximum profit – Difference between the strike prices less the net premium paid. Occurs if futures price is at or below the higher Strike Price at expiration. Positioning Strategies– Buy At-The-Money Option if you anticipate Low Volatility Buy In-The-Money Option if you anticipate High Volatility.

Vertical Bull Call Spread
Gains Long Call Lower Strike Price Underlying Futures Price Short Call Higher Strike Price Losses

Vertical Bull Put Spread Buy At-The-Money Put and Sell In-The-Money Put or Buy Out-Of-The-Money Put and Sell At-The-Money Put. Receive Net Premium Maximum loss – Difference between the strike prices less the net premium received. Occurs if futures prices trade at or below the lower strike price. Maximum profit –Net Premium received. Occurs if futures prices trade at or above higher strike price. Positioning Strategies– Buy At-The-Money Option if you anticipate Low Volatility Buy Out-The-Money Option if you anticipate High Volatility.

Vertical Bull Put Spread
Gains Long Put Lower Strike Price Underlying Futures Price Short Put Higher Strike Price Losses

Short Call Butterfly Buy and sell calls at 3 equidistant strike prices with same expiration. Sell one call each at highest and lowest strike prices and Buy 2 Call at Middle Strike Price. Receive Net Premium Maximum loss – Difference between the consecutive strike prices less the net premium received. Occurs if futures prices trade at middle strike price. Maximum profit –Net Premium received. Occurs if futures prices trade at or above higher strike price or at or below the lower strike price. Positioning Strategies– Buy 2 middle strike price options Out-The-Money if you are bearish Buy 2 middle strike price options At-The-Money if you expect no change in the market. Buy 2 middle strike price In-The-Money if you are bullish.

Long 2 Calls Middle Strike Price
Short Call Butterfly Gains Long 2 Calls Middle Strike Price Underlying Futures Price Short Call Lower Strike Price Short Call Higher Strike Price Losses

Long Call Butterfly Buy and sell calls at 3 equidistant strike prices with same expiration. Buy one call each at highest and lowest strike prices and Sell 2 Calls at Middle Strike Price. Pay Net Premium Maximum loss –Net Premium Paid. Occurs if futures prices trade at or above higher strike price or at or below the lower strike price. Maximum profit –Difference between the consecutive strike prices less the net premium paid. Occurs if futures prices trade at middle strike price. Positioning Strategies– Buy 2 middle strike price options In-The-Money if you are bearish Buy 2 middle strike price options At-The-Money if you expect no change in the market. Buy 2 middle strike price Out-The-Money if you are bullish.

Short 2 Calls Middle Strike Price
Long Call Butterfly Gains Long Call Lower Strike Price Long Call Higher Strike Price Underlying Futures Price Short 2 Calls Middle Strike Price Losses

Short Put Butterfly Buy and sell puts at 3 equidistant strike prices with same expiration. Sell one Put each at highest and lowest strike prices and Buy 2 Puts at Middle Strike Price. Receive Net Premium Maximum loss – Difference between the consecutive strike prices less the net premium received. Occurs if futures prices trade at middle strike price. Maximum profit –Net Premium received. Occurs if futures prices trade at or above higher strike price or at or below the lower strike price. Positioning Strategies– Buy 2 middle strike price options In-The-Money if you are bearish Buy 2 middle strike price options At-The-Money if you expect no change in the market. But 2 middle strike price options Out-The-Money if you are bullish.

Long 2 Puts Middle Strike Price
Short Put Butterfly Gains Long 2 Puts Middle Strike Price Underlying Futures Price Short Put Lower Strike Price Short Put Higher Strike Price Losses

Long Put Butterfly Buy and sell puts at 3 equidistant strike prices with same expiration. Buy one Put each at highest and lowest strike prices and Sell 2 Puts at Middle Strike Price. Pay Net Premium Maximum loss – Net Premium Paid. Occurs if futures prices trade at or above higher strike price or at or below the lower strike price. Maximum profit –Difference between the consecutive strike prices less the net premium paid. Occurs if futures prices trade at middle strike price. Positioning Strategies– Buy 2 middle strike price options Out-The-Money if you are bearish Buy 2 middle strike price options At-The-Money if you expect no change in the market. But 2 middle strike price options In-The-Money if you are bullish.

Long Put Butterfly Gains Underlying Futures Price Losses
Long Put Lower Strike Price Long Put Higher Strike Price Underlying Futures Price Short 2 Puts Middle Strike Price Losses

Short Call Condor Buy and sell calls at 4 equidistant strike prices with same expiration. Sell one Call each at highest and lowest strike prices and Buy 2 Calls at two Middle Strike Prices. Receive Net Premium Maximum loss – Difference between the consecutive strike prices less the net premium received. Occurs if futures prices trade at or between middle strike prices. Maximum profit –Net Premium received. Occurs if futures prices trade at or above highest strike price or at or below the lowest strike price. Positioning Strategies– Buy 2 middle strike price options Out-The-Money if you are bearish Buy 2 middle strike price options At-The-Money if you expect no change in the market. But 2 middle strike price options In-The-Money if you are bullish.

Short Call Condor Gains Underlying Futures Price Losses
Long Call Lower Inner Strike Price Long Call Higher Inner Strike Price Underlying Futures Price Short Call Lower Outer Strike Price Short Call Higher Outer Strike Price Losses

Long Call Condor Buy and sell calls at 4 equidistant strike prices with same expiration. Buy one Call each at highest and lowest strike prices and Sell 2 Calls at two Middle Strike Prices. Pay Net Premium Maximum loss – Net Premium Paid. Occurs if futures prices trade at or above highest strike price or at or below the lowest strike price. Maximum profit –Difference between the consecutive strike prices less the net premium Paid. Occurs if futures prices trade at or between middle strike prices. Positioning Strategies– Sell 2 middle strike price options In-The-Money if you are bearish Sell 2 middle strike price options At-The-Money if you expect no change in the market. Sell 2 middle strike price options Out-The-Money if you are bullish.

Long Call Condor Gains Underlying Futures Price Losses
Long Call Lower Outer Strike Price Long Call Higher Outer Strike Price Underlying Futures Price Short Call Lower Inner Strike Price Short Call Higher Inner Strike Price Losses

Short Put Condor Buy and sell Puts at 4 equidistant strike prices with same expiration. Sell one Put each at highest and lowest strike prices and Buy 2 Puts at two Middle Strike Prices. Receive Net Premium Maximum loss – Difference between the consecutive strike prices less the net premium received. Occurs if futures prices trade at or between middle strike prices. Maximum profit –Net Premium received. Occurs if futures prices trade at or above highest strike price or at or below the lowest strike price. Positioning Strategies– Buy 2 middle strike price options In-The-Money if you are bearish Buy 2 middle strike price options At-The-Money if you expect no change in the market. But 2 middle strike price options Out-The-Money if you are bullish.

Short Put Condor Gains Underlying Futures Price Losses
Long Put Lower Inner Strike Price Short Put Higher Inner Strike Price Underlying Futures Price Short Put Lower Outer Strike Price Short Put Higher Outer Strike Price Losses

Long Put Condor Buy and sell Puts at 4 equidistant strike prices with same expiration. Buy one Put each at highest and lowest strike prices and Sell 2 Puts at two Middle Strike Prices. Pay Net Premium Maximum loss – Net Premium Paid. Occurs if futures prices trade at or above highest strike price or at or below the lowest strike price. Maximum profit –Difference between the consecutive strike prices less the Net Premium Paid. Occurs if futures prices trade at or between middle strike prices. Positioning Strategies– Sell 2 middle strike price options Out-The-Money if you are bearish Sell 2 middle strike price options At-The-Money if you expect no change in the market. Sell 2 middle strike price options In-The-Money if you are bullish.

Long Put Condor Gains Underlying Futures Price Losses
Long Put Lower Outer Strike Price Long Put Higher Outer Strike Price Underlying Futures Price Short Put Lower Inner Strike Price Short Put Higher Inner Strike Price Losses

Unlimited Risk-Limited Returns Options Strategies
Short Call or Short Synthetic Call Short Call – Selling Call Option. Receive Option Premium. Short Synthetic Call is selling a futures contract and selling a Put Option with expiration the same as the futures price. Receive Option Premium. Maximum Loss – Unlimited. Maximum profit – Premium received in a short Call. Occurs if futures price is at or below the Call Option Strike Price at expiration. Premium received in a short Synthetic Call (initial futures price less the strike price in the put). Occurs if the futures price is at or below the Put Option Strike Price at expiration.

Short Synthetic Call Gains Underlying Futures Price Losses
Short Put Underlying Futures Price Short Put Strike Price Short Synthetic Call Losses Short Futures

Short Put or Short Synthetic Put Short Put – selling a Put option. Receive Option Premium. Short Synthetic Put is buying a futures contract and selling a Call Option with expiration the same as the futures price. Receive Option Premium. Maximum Loss – Unlimited. Maximum profit Premium received in a short Put. Occurs if futures price is at or above Put Option Strike Price at expiration. Premium received in a short Synthetic Put plus (initial strike price less the futures price in the put). Occurs if the futures price is at or above the Call Option Strike Price at expiration.

Short Synthetic Put Gains Underlying Futures Price Losses
Short Call Strike Price Losses Long Futures Short Call

Call Frontspread Simultaneous buy and sell of Call Options with different strike prices but for same expiration. Sell more Calls than are bought. Always buy at lower Strike Price and sell at Higher Strike Price. Should execute with Delta equal to zero at initiation. Pay Net Premium. Maximum Loss – Unlimited when prices increase but limited to Net Premium Paid when prices decline. Maximum profit – Difference between the strike prices less the Net Premium Paid. Occurs if futures trade at higher Strike Price at expiration.

Call Frontspread Gains Underlying Futures Price Losses
Long Call Lower Strike Price Underlying Futures Price Short Calls Higher Strike Price Losses

Put Frontspread Simultaneous buy and sell of Put Options with different strike prices but for same expiration. Sell more Puts than are bought. Always sell at lower Strike Price and buy at higher Strike Price. Should execute with Delta equal to zero at initiation. Pay Net Premium. Maximum Loss – Unlimited when prices decline, but limited to Net Premium Paid when prices rise. Maximum profit – Difference between the strike prices less the Net Premium Paid. Occurs if futures trade at lower Strike Price at expiration.

Put Frontspread Gains Underlying Futures Price Losses
Long Put Higher Strike Price Underlying Futures Price Short Puts Lower Strike Price Losses

Short Straddle Simultaneous sell of a Call and a Put with identical strike prices (typically ATM) and expirations. Receive Net Premium. Maximum Loss – Unlimited. Losses begin accruing when price is further away from the strike price than the premium received. Maximum profit –Net Premium Received. Occurs if futures trade at the Strike Price at expiration.

Short Call and Put Strike Price
Short Straddle Gains Underlying Futures Price Short Call and Put Strike Price Losses

Short Strangle Simultaneous sell of a Call and a Put with different strike prices (typically both OTM), but same expirations. Receive Net Premium. Maximum Loss – Unlimited. Losses begin accruing when futures price is above the higher Strike Price (or below the lower Strike Price) more than the net premium received. Maximum profit –Net Premium Received. Occurs if futures trade at or between the Strike Prices at expiration.

Short Strangle Gains Underlying Futures Price Losses
Short Put Lower Strike Price Short Call Higher Strike Price Losses

Limited Risk-Unlimited Returns Options Strategies
Long Call or Long Synthetic Call Long Call – Buying Call Option. Pay Option Premium. Long Synthetic Call is buying a futures contract and buying a put with expiration the same as the futures price. Pay Option Premium. Maximum Loss – Option Premium Paid. Occurs if the futures price is at or below the Strike Price in the Option of either position Maximum profit – unlimited with either position

Long Synthetic Call Gains Underlying Futures Price Losses
Long Put Strike Price Underlying Futures Price Long Put Losses Long Futures

Long Put or Long Synthetic Put Long Put – Buying a Put option. Pay Option Premium. Long Synthetic Put - Selling a futures contract and buying a Call with expiration the same as the futures price. Pay Option Premium. Maximum Loss – Option Premium Paid. Occurs if the futures price is at or above the Strike Price in the Option of either position Maximum profit – Unlimited with either position

Long Synthetic Put Gains Underlying Futures Price Losses
Long Call Gains Long Call Strike Price Underlying Futures Price Long Synthetic Put Losses Short Futures

Call Backspread Simultaneous buy and sell of Call Options with different strike prices but for same expiration. Buy more Calls than are sold. Always sell at lower Strike Price and buy at Higher Strike Price. Should execute with Delta equal to zero at initiation. Receive Net Premium. Maximum Loss –Difference between the strike prices less the Net Premium Received. Occurs if futures trade at higher Strike Price at expiration. Maximum profit – Unlimited on price increases but limited to the net premium received on price decreases.

Call Backspread Gains Underlying Futures Price Losses
Long Calls Higher Strike Price Underlying Futures Price Short Call Lower Strike Price Losses

Put Backspread Simultaneous buy and sell of Put Options with different strike prices but for same expiration. Buy more Puts than are sold. Always buy at lower Strike Price and sell at Higher Strike Price. Should execute with Delta equal to zero at initiation. Receive Net Premium. Maximum Loss –Difference between the strike prices less the Net Premium Received. Occurs if futures trade at lower Strike Price at expiration. Maximum profit – Unlimited on price decreases but limited to the net premium on price increases.

Put Backspread Gains Underlying Futures Price Losses
Long Puts Lower Strike Price Underlying Futures Price Short Put Higher Strike Price Losses

Long Straddle Simultaneous buy a Call and Put with identical strike prices (typically ATM) and expirations. Pay Net Premium. Maximum Loss – Net Premium Paid. Occurs if futures trade at the Strike Price at expiration. Maximum profit –Unlimited. Profits begin accruing when price is further away from the strike price than the premium paid.

Long Put and Call Strike Price
Long Straddle Gains Long Put and Call Strike Price Underlying Futures Price Losses

Long Strangle Simultaneous Buy a Call and Put with different strike prices (typically OTM), but same expirations. Pay Net Premium. Maximum Loss –Net Premium Paid. Occurs if futures trade at or between the Strike Prices at expiration. Maximum profit –Unlimited. Profits begin accruing when futures price is above the higher Strike Price (or below the lower Strike Price) more than the net premium paid.

Long Strangle Gains Underlying Futures Price Losses
Long Put Lower Strike Price Long Call Higher Strike Price Underlying Futures Price Losses

Unlimited Risk-Unlimited Returns Options Strategies
Short Synthetic Futures Simultaneously buy a put and sell a call with identical Strike Prices and expirations. May pay or receive net premium. Maximum loss – unlimited as futures price increases. Maximum Profit – Unlimited as futures price decreases

Short Synthetic Futures
Gains Underlying Futures Price Long Put Long Put and Short Call Strike Price Short Call Short Synthetic Futures Losses

Unlimited Risk-Unlimited Returns Options Strategies
Long Synthetic Futures Simultaneously buy a call and sell a put with identical Strike Prices and expirations. May pay or receive net premium. Maximum loss – unlimited as futures price decreases. Maximum Profit – Unlimited as futures price increases

Long Synthetic Futures
Short Synthetic Futures Gains Long Call Long Call and Short Put Strike Price Short Put Underlying Futures Price Losses

Bear Market Low Volatility Limited Risk Limited Return Strategies
Vertical Bear Call Spread – Sell ITM, Buy ATM Vertical Bear Put Spread – Sell OTM, Buy ATM Short OTM Call Butterfly or Condor Short ITM Put Butterfly or Condor

Bear Market High Volatility Limited Risk Limited Return Strategies
Vertical Bear Call Spread – Sell ATM, Buy OTM Vertical Bear Put Spread – Sell ATM, Buy ITM Long ITM Call Butterfly or Condor Long OTM Put Butterfly or Condor

Neutral Market Low Volatility Limited Risk Limited Returns
Short ATM Call Butterfly or Condor Short ATM Put Butterfly or Condor

Neutral Market High Volatility Limited Risk Limited Returns
Long ATM Call Butterfly or Condor Long ATM Put Butterfly or Condor

Bull Market Low Volatility Limited Risk Limited Returns
Vertical Bull Call Spread – But ATM, Sell OTM Vertical Bull Put Spread – Buy ATM, Sell ITM Short ITM Call Butterfly or Condor Short OTM Put Butterfly or Condor

Bull Market High Volatility Limited Risk Limited Returns
Vertical Bull Call Spread – Buy ITM, Sell ATM Vertical Bull Put Spread – Buy OTM, Sell ATM Long OTM Call Butterfly or Condor Long ITM Put Butterfly of Condor

Bear Market Low Volatility Limited Risk Unlimited Returns
Long Put Long Synthetic Put

Neutral Market Low Volatility Limited Risk Unlimited Returns
Call Backspread Put Backspread Long Straddle Long Strangle

Bull Market Low Volatility Limited Risk Unlimited Returns
Long Call Long Synthetic Call

Bear Market High Volatility Unlimited Risk Limited Returns
Short Call Short Synthetic Call

Neutral Market High Volatility Unlimited Risk Limited Returns
Call Frontspread Put Frontspread Short Straddle Short Strangle

Bull Market High Volatility Unlimited Risk Limited Returns
Short Put Short Synthetic Put

Bear Market Moderate Volatility Unlimited Risk Unlimited Returns
Short Futures Short Synthetic Futures

Bull Market Moderate Volatility Unlimited Risk Unlimited Returns
Long Futures Long Synthetic Futures

Agricultural Commodity Marketing and Risk Management

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Agricultural Commodity Marketing and Risk Management

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