OPTIONS
Puts or calls, buy or write, that is the question.
Today, we are going to make options simple for you. For most of us, options aren't much different that insurance. In the insurance world, several different companies come up with several different prices for protection against something you don't want to happen. I don't want to loose my truck, so I buy insurance on it. If it gets stolen, or in a wreck, the insurance company pays me for my loss. The reality is, I probably won't wreck my truck, so the insurance company will pocket my premium, and show up again in six months or a year offering me a new policy. For a new premium. If you buy the option, you are the customer. If you sell the option, you are the insurance company.
Puts are insurance for the market going down. If a market collapse ruins your day, owning some puts might be a good thing. If a dead market is in the works and you have sold the crop, maybe its time to be the insurance company and write the put. The devil is in the details. Figuring out what details matter to you is just one of our services.
Calls are insurance for the price going up. Lets say rent is going up to the point that you can't afford to plant at the current price, but you want to participate, because you are convinced prices will rise significantly in the spring. It might make sense to be long with options rather than in the field. Go another direction and you have to have a dependable source for soy, corn, or rice. Can your processing business afford a major price spike and still keep the pipeline going? Have you really run the numbers? Do you understand the various strategies that can allow you to profitably participate? We would be glad to help.
Today, we are going to make options simple for you. For most of us, options aren't much different that insurance. In the insurance world, several different companies come up with several different prices for protection against something you don't want to happen. I don't want to loose my truck, so I buy insurance on it. If it gets stolen, or in a wreck, the insurance company pays me for my loss. The reality is, I probably won't wreck my truck, so the insurance company will pocket my premium, and show up again in six months or a year offering me a new policy. For a new premium. If you buy the option, you are the customer. If you sell the option, you are the insurance company.
Puts are insurance for the market going down. If a market collapse ruins your day, owning some puts might be a good thing. If a dead market is in the works and you have sold the crop, maybe its time to be the insurance company and write the put. The devil is in the details. Figuring out what details matter to you is just one of our services.
Calls are insurance for the price going up. Lets say rent is going up to the point that you can't afford to plant at the current price, but you want to participate, because you are convinced prices will rise significantly in the spring. It might make sense to be long with options rather than in the field. Go another direction and you have to have a dependable source for soy, corn, or rice. Can your processing business afford a major price spike and still keep the pipeline going? Have you really run the numbers? Do you understand the various strategies that can allow you to profitably participate? We would be glad to help.
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