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Selling Corn Puts

08/29/2014 @ 1:58pm

As corn prices decline into fall, it may seem there is little opportunity. Yet, if you sold corn earlier in the year, there may be a way to add premium to your bottom line or add premium and re-own it at a lower price.

The seller of a put gives someone else the right to sell futures. If the futures price of the underlying contract, at expiration, is above the sold strike price at expiration, the option will expire worthless. The owner of the put option will not exercise their right. The premium that the option buyer paid is collected by the option seller (writer).

As an example, say you sold a March $3.50 corn put and collected 15 cents. At the expiration date on February 20, if March corn futures are above $3.50, you would collect the entire premium (less commissions and fees). What if March corn futures are below $3.50, around $3.00? The owner of the put would exercise the option and would be assigned a short futures at $3.50. You, the option seller, would be assigned a long futures at $3.50, and you would collect the premium of 15 cents. Commissions and fees would also be involved.

Selling options may not seem all that attractive considering you have unlimited risk, the position is marginable, and your gain is fixed to the premium collected. Yet, in the above example of a corn producer who has already sold, the idea of adding premium and possibly being long at a lower price may be an excellent idea.

Option writing is not for everyone. You have to be comfortable with the risk and potential ramifications should the market move against you. Yet, by being aware of how option writing works, you have another tool in your marketing toolbox to consider using when the time and place are right.

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If you have questions or comments, or would like help implementing strategy for the year ahead, please contact Bryan Doherty at 1-800-TOP-FARM ext. 129.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. This material has been prepared by a sales or trading employee or agent of Stewart-Peterson and is, or is in the nature of, a solicitation. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Stewart-Peterson. Stewart-Peterson refers to Stewart-Peterson Group Inc. and Stewart-Peterson Inc. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with both companies. Accordingly this email is sent on behalf of the company or companies providing the services discussed in the email.

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