instrument – as a means for income or simply as a way to set a price floor or ceiling for your crop.

Option contracts enable farmers to adjust or modify trade positions according to whatever situation arises. The biggest benefit of using options is that farmers can custom tailor marketing needs when initiating an options strategy to their exact risk/reward parameters.

However, because traits of an option change with the passage of time, speed and direction of the futures market and changes in the perceive value of options, the characteristic of an option position can change

Photographs: Josh Sears

– sometimes quite dramatically. Trading options is an active hedging strategy that requires continuous monitoring rather than a passive Option trading hedging strategy like straight future or over-the-counter hedges that have static characteristics.

For example, if corn prices move from $6.00 to $5.90, it is no differ-

Todd Swenson, currently trading in the soybean options pit, has worked on the floor of ent than corn prices moving from the Chicago Board of Trade since 1984. He executes trades for various clearing houses. $4.00 to $3.90 on a future hedge ( 10¢

is 10¢ no matter where prices are). But, if you bought a December $5.90

With huge swings in today’s that allows farmers to sculpt hedging options put at 25¢ on June 1, and markets, option contracts positions to their exact needs. December corn prices were at $7.00

Options are another tool in the on October 1 (way out of the money
^{offer farmers insurance} drawer that can be used as aggres- and likely worthless with so little
_{By Todd Swenson} sively or conservatively as you feel time left), it would be vastly different
comfortable, coupled with what than if prices were at $5.80 and ques-
market conditions warrant. Options tionable whether that option would

The word options is derived are meant to be used as a value-add- finish in or out of the money. from the Latin word opti ed product that can enhance hedging meaning choice. Having profits and reduce risk. NEW COMMODITY MARKETS choices in a trading or hedging strat- Options, as a marketing tool, can The last year or so has seen histori-egy can help reduce risk and amplify be used as a leverage or insurance cally high grain prices and for that profit potential. The strength of op- matter most commodity markets. tions is the versatility and flexibility The change to an electronic mar-