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Strategies of Marketing

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					       KSU-Option strategies.xls -- A spreadsheet program to compare alternativ e marketing strategies
       that use the futures and options markets.

       Version -- 02.11.09

Inputs v s Calculated Values
In the Strategies tab all blue numbers are inputs and all other numbers are calculated f rom these inputs. The spreadsheet
automatically recalculates ev ery time an additional input is entered. Thus, it is important to wait until all data hav e been entered
and rev iewed bef ore interpreting any of the calculated results (i.e., black numbers).



Strategies
In the Strategies tab, f our alternativ e marketing strategies can be compared side-by -side at one time. These strategies can use
f utures, options, or a combination of the two. It is important to note that because these strategies only consider f utures and
options basis risk still exists. Thus, the calculated expected net selling (buy ing) prices are still subject to changes in basis f rom
the expeted v alue entered. It is also important to note that options strategies that inv olv e selling options (either puts or calls)
requires margin money and also hav e potentially unlimited risk; whereas, simply purchasing options has limited risk (i.e., the
cost of premium).


Dev eloped by:
       Kevin C. Dhuyvetter
       Farm Management Specialist
       Agricultural Economics

       voice: (785) 532-3527
       FAX: (785) 532-6925
       email: kcd@ksu.edu
       website: www.agmanager.info




                                                                                                                                          KSU-Landbuy.xls -- Developed by Terry L. Kastens and Kevin C. Dhuyvetter
                                                                                                                                                    Kansas State University Agricultural Economists
KSU-Landbuy.xls -- Developed by Terry L. Kastens and Kevin C. Dhuyvetter
          Kansas State University Agricultural Economists
KSU-Landbuy.xls -- Developed by Terry L. Kastens and Kevin C. Dhuyvetter
          Kansas State University Agricultural Economists
KSU-Landbuy.xls -- Developed by Terry L. Kastens and Kevin C. Dhuyvetter
          Kansas State University Agricultural Economists
Comparison of Futures and Options Market Strategies
Buying or selling (buy=1, sell=2)                                                   2
Futures price at time of trade                                                 $11.81          Futures and Options Gain/Loss
Expected basis                                                                 -$1.20           Futures                                  Hedge &
Interval for futures price change to consider                                   $0.50           Prices    Cash      Hedge     Put          Call
                                                                               Hedge &           $9.31    $0.00     $2.49    $1.61        $1.80
Strategy                                       Cash       Hedge       Put        Call            $9.81    $0.00     $1.99    $1.11        $1.30
Futures (buy=1, sell=2)                                      2                      2           $10.31    $0.00     $1.49    $0.61        $0.80
Put option strike 1                                                 $11.80                      $10.81    $0.00     $0.99    $0.11        $0.30
   Premium                                                           $0.87                      $11.31    $0.00     $0.49   -$0.39       -$0.20
   Buy=1, Sell=2                                                         1                      $11.81    $0.00    -$0.02   -$0.88       -$0.70
   Number bought/sold                                                    1                      $12.31    $0.00    -$0.52   -$0.88       -$1.20
Put option strike 2                                                                             $12.81    $0.00    -$1.02   -$0.88       -$1.31
   Premium                                                                                      $13.31    $0.00    -$1.52   -$0.88       -$1.31
   Buy=1, Sell=2                                                                                $13.81    $0.00    -$2.02   -$0.88       -$1.31
   Number bought/sold                                                                           $14.31    $0.00    -$2.52   -$0.88       -$1.31
Call option strike 1                                                           $12.40
   Premium                                                                      $0.68
   Buy=1, Sell=2                                                                    1          Expected Net Selling Price
   Number bought/sold                                                               1           Futures                                  Hedge &
Call option strike 2                                                                            Prices    Cash      Hedge        Put       Call
   Premium                                                                                       $9.31   $8.11     $10.59       $9.71     $9.90
   Buy=1, Sell=2                                                                                 $9.81   $8.61     $10.59       $9.71     $9.90
   Number bought/sold                                                                           $10.31   $9.11     $10.59       $9.71     $9.90
                                                                                                $10.81   $9.61     $10.59       $9.71     $9.90
Commission to buy AND sell futures, $/unit (bu, cwt)                           $0.015           $11.31 $10.11      $10.59       $9.71     $9.90
Option comission to buy OR sell an option, $/unit                              $0.009           $11.81 $10.61      $10.59       $9.73     $9.90
                                                                                                $12.31 $11.11      $10.59      $10.23     $9.90
Total premium paid                              $0.000     $0.000     $0.870     $0.680         $12.81 $11.61      $10.59      $10.73    $10.30
Total premium received                          $0.000     $0.000     $0.000     $0.000         $13.31 $12.11      $10.59      $11.23    $10.80
Total commission                                $0.000     $0.015     $0.009     $0.024         $13.81 $12.61      $10.59      $11.73    $11.30
Net cost per unit                               $0.000     $0.015     $0.879     $0.704         $14.31 $13.11      $10.59      $12.23    $11.80



                                                         Comparison of Various Marketing Strategies
                              $14.00

                                                 Cash
                              $13.00
                                                 Hedge
                                                 Put
                              $12.00             Hedge & Call
 Expected Net Selling Price




                              $11.00


                              $10.00


                               $9.00


                               $8.00


                               $7.00


                               $6.00
                                       $9.31   $9.81      $10.31    $10.81     $11.31     $11.81   $12.31   $12.81    $13.31    $13.81   $14.31
                                                                         Futures Price at Expiration




                                                                171d3d63-104b-4ec9-b96e-12b280c9d13f.xls
                                                                     Developed by Kevin C. Dhuyvetter
                                                          Extension Agricultural Economist, Kansas State University
Links to market information
Chicago Mercantile Exchange (CME)     http://www.cme.com
Chicagot Board of Trade (CBOT)        http://www.cbot.com/
Kansas City Board of Trade (KCBT)     http://www.kcbt.com/

Example corn, soybean meal, and wheat premiums (from DTN)

				
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