1. Agricultural Marketing
ECON 337:
Agricultural Marketing
Lee Schulz
Assistant Professor
Chad Hart
Associate Professor 1

2. Option Premiums Can be divided into two sections:
Intrinsic value
What is the option worth today?
Time value
How much time is left on the option?
Intrinsic value depends on the futures price and the strike price of the option.
Time value depends on the length of time in the option and the price volatility in the market.

3. Example Start with an December 2016 corn put option @ $3.90 per bushel
Day
Futures Price
Option Premium
Intrinsic Value
Time Value 1
$3.92
$0.3025
$0.00 2
$3.94
$0.29 3
$3.93
$0.295 4
$3.9125
$0.3075 5
$3.8925 $
$0.0075 $

4. Combination Strategies
Option fence
Buy put and sell call
Put spread
Buy In-the-money or At-the-money put and sell Out-of-the-money put

5. Option Returns in a Fence
Buy Put Option Dec $3.50
Premium = $
Sell Call Option Dec $4.50
Premium = $

6. Fence for Speculator Buy Put Option Dec. 2016 Corn @ $3.50
Premium = $
Sell Call Option Dec $4.50
Premium = $

7. Fence for Hedger Buy Put Option Dec. 2016 Corn @ $3.50
Premium = $
Sell Call Option Dec $4.50
Premium = $

8. Option Returns in Spread
Buy Put Option Dec $4.50
Premium = $
Sell Put Option Dec $3.50
Premium = $

9. Spread for Speculator Sell Put Option Dec. 2016 Corn @ $3.50
Premium = $
Buy Put Option
Dec $4.50
Premium = $

10. Spread for Hedger Sell Put Option Dec. 2016 Corn @ $3.50
Premium = $
Buy Put Option
Dec $4.50
Premium = $

11. Combination Strategies
Butterfly
Straddle
Condor
Strangle
These positions can be flipped

12. Condor Sell Put @ $3.00 Premium = $0.02 Sell Call @ $6.00
Buy $4.00
Premium = $
Buy $5.00
Premium = $

13. Condor for Hedger

14. The 4 Basic Graphs for Options
Buy a put
Sell a put
Buy a call
Sell a call

15. Class web site: Lab in Heady 68.
Lab in Heady 68.