If you want to sell about 100,000 bushels of Corn in the Autumn. Assume you think that prices are currently high, $2.40 per bushel, and you want to hedge yourself. Discuss two possible hedging strategies : (1) based on futures / forwards, and (2) based on options. Assume that the relevant positions have contract prices or exercise prices of $2.50 per bushel. The price of the option is $ 0.12 (12 cents) per bushel. Indicate how your “real position, derivative position, and overall outcome” depends on the final corn price and on the hedge strategy. In each case, you might indicate the outcomes if corn next Autumn turns out to be $2.00 or $2.50 or $3.00 per bushel.

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Hedging 100000 bushels of Corn Two Strategies You believe corn prices are high at 240 and want to hedge your planned sale of 100000 bushels in the Aut... View the full answer