When it comes to marketing your grain there are are many different factors to consider. We've put together a guide to help you decide which grain marketing strategies make sense for your unique operation. Follow the different pathways in this chart, and be sure to refer to the Glossary (located below the chart) for an explanation of key terms.
For the a larger version of this chart, view the PDF here »
Call option: An option that gives the option buyer the right to purchase (go “long”) the underlying futures contract at the strike price on or before the expiration date.
Futures contract: A standardized contract traded on a futures exchange for the delivery of a specified commodity at a future time. The contract specifies the item to be delivered and the terms and conditions of delivery.
Hedge: The buying or selling of futures contracts and/or options contracts for protection against the possibility of a price change in the physical commodity.
Initial margin: The margin that market participants must pay when they initiate their position.
Long: A position established by purchasing a futures contract or an options contract (either a call or a put).
Margin call: A requirement made by a brokerage firm to a market participant to deposit additional funds into one’s margin account to bring it up to the required level. The reason for additional funds can be the result of a losing market position or an increase in the exchange margin requirement.
Option buyer: The purchaser of either a call option or a put option; also known as the option holder. Option buyers receive the right, but not the obligation, to enter a futures market position.
Option seller: The seller of a call or put option; also known as the option writer or grantor. An option seller receives the premium and is subject to a potential market obligation if the option buyer chooses to exercise the option rights.
Premium: The price of a particular option contract determined by trading between buyers and sellers. The premium is the maximum amount of potential loss for an option buyer and the maximum amount of potential gain for an option seller.
Put option: An option that gives the option buyer the right to sell (go “short”) the underlying futures contract at the strike price on or before the expiration date
Short: The position created by the sale of a futures contract or option (either a call or a put).
Strike price: The price at which the holder of a call (put) may choose to exercise his right to purchase (sell) the underlying futures contract.
CME Group. (2015). Self-Study Guide to Hedging with Grain and Oilseed Futures and Options. Retrieved from: http://www.cmegroup.com/trading/agricultural/files/grain-oilseed-hedgers-guide.pdf