It is March and you grow sugarcane on your property north of the Sunshine Coast. At present (in March), you expect the size of your crop for the coming November to be 50,000 kilograms. You note that in March, November dated futures contracts written on sugarcane are quoted at $2.50 per kilogram. Your attitude is very risk averse given the huge responsibility placed on you by your family in managing the family farm. You wish to take steps to guard against any unfavourable movements in the price of sugarcane. Assume that contracts are for 1,000 kilograms.
A wheat farmer has an expected production of 1000 tonnes in January. Using the information provided, conduct an analysis of the futures trading the farmer would do in order to hedge against risk (gives explicit figures, don't need to find the information in those stupid stocks tables)
Due to the riskiness, I would like to buy a long futures option to sell the sugarcane at a predetermined price. This limits my downside risk while opening me to the upside gains.
Hence, I would recommend going for a
Long - because it allows me to be price-conscious and have a better deal.
Put- Becuase I want to sell
Option (preferably American) - I want to limit my downside.
It is March and you grow sugarcane on your property north of the Sunshine Coast. At...
FISCAL POLICY IN THEORY: March, 2020: we are on the verge of Congress and the President passing legislation that will empower the federal government to spend an unprecedented amount of EXTRA money not seen since World War 2 ---- in order to address the pandemic but also to help cushion the blow financially of perhaps ten or twenty million Americans --- or more --- losing their jobs, and thus suffering a drop in income. The scale of the 2020 recession...