1. Problem: How to sell this year's soybean crop. It's November, the crop is safely in the bin, and you don't need the money until March. Strategies: 1. Store until March and sell for whatever the cash price is then. 2. Forward cash contract for March delivery, at $10.20 per bushel 3. Hedge by selling a March futures contract at $10.75. Buy back the contract in March, then sell the soybeans for cash. 4. Buy PUT options at a $1 1.70 strike price for March futures, for a premium of $.20 per bushel. Sell the PUTs in March, then sell the soybeans for cash. Fill in the Table (18 pts.) Results in March Scenario 1: Prices fall, basis widens Scenario 2: Prices rise, basis narrows March futures price = $9.50 March futures price = $12.40 Basis = $.80 Basis = $.40 March cash price = $ March cash price = $ PUT option value = $1.45 PUT option value = $.00 Strategy (market went down $1.25) (market went up more than $.20) 1. Store and sell in March at cash price Net price = $ Net price = $ 2.Forward contract and deliver in Net price = $ Net price = $ March 3.Sell futures contract, buy it back in Gain/loss on futures = $ Gain/loss on futures = $ March, sell beans for cash price (gain or loss on futures, plus cash price) Cash price $ Cash price $ Net price = Net price = $ 4.Buy PUT option now, sell PUT in Gain/loss on PUT = $ Gain/loss on PUT = $ March, sell beans for cash price (gain or loss on PUT, plus cash price) Cash price $ Cash price $ Net price = $ Net price = b. Which strategy has the highest net price for each Scenario? (4 pts.) c. Which strategy has the lowest net price? (4 Pts.) d. Which strategy is most risky? (1 pt.) (widest range of results) e. Which strategy is least risky? (1 pt.) (narrowest range of results)