• Skip to primary navigation
  • Skip to main content
  • Skip to footer

Daniels Trading

Independent. Objective. Reliable.

Top Navigation

  • Open a Futures Account
  • Sign Up
  • Log in
  • 1.800.800.3840

Primary Navigation Menu

  • About
    • Who We Are
    • Services
    • Careers
    • Risk Disclosure
  • Trade
    • Broker-Assisted
    • Self-Directed / Online
    • Request Pricing
  • Hedge
    • DanielsAg Mobile App
    • Ag Marketing Plan
    • WASDE Analysis
    • Grain Resources
    • Livestock / Dairy Resources
    • Hedging Videos
    • Request Pricing
  • Invest
    • Automated Strategies
    • Managed Futures
    • Request Pricing
  • Advisories
    • GENERAL / FUNDAMENTAL
      • DT Newsletter
      • Insider Market Advisory
      • Capture the Move
      • Turner’s Take Newsletter & Podcast
    • TECHNICAL ANALYSIS
      • AccuMarkets
      • The Cullen Outlook
      • Data Feed Trade
      • Rath Overlay
      • Seasonal Spread Trader
      • Trade Spotlight
    • AG MARKETING
      • Cattleman’s Advisory
      • The Swine Times
      • Technical Ag Knowledge
      • This Week in Grain
      • Turner’s Take Ag Marketing
    • THIRD-PARTY RESOURCES
      • CFRN
      • Market Action Scanner
      • Moore Research Center, Inc. (MRCI)
      • OptionWorks®
      • PatternCast
      • TASMarketProfile.com
  • Education
    • CME Group Resource Center
    • Guides
    • Frequently Asked Questions
    • Order Entry Handbook
    • Webinars
  • Blog
    • Futures 101
    • Ag Marketing
    • Tips & Strategies
    • Trading Advisories
  • Resources
    • Trading Software
    • Quotes and Charts
    • Futures Calendars
    • Contract Specifications
    • Margin Requirements
    • Futures Calculator
  • Accounts
    • GAIN Capital Futures
    • R.J. O’Brien
  • Contact
 

Protecting Grain with Put Options

August 27, 2018 by Jacob Swart| Ag Marketing

Let me paint you a picture: harvest is winding down and you’re pulling the last of the crop out of the field.  The price you could get at the elevator is hovering right around that breakeven level, which is good, but you’re aiming to bring in a profit for the year.  You have storage bins on farm, so you know you have a place to put the grain if you don’t sell it.  After this turbulent year of prices, you’re going back and forth to decide whether you should sell and breakeven, or store the crop and hold off sales in hopes of a potential winter rally like we saw in February 2018.

What should you do?  Sell and run the risk of staring down seller’s remorse if we catch a winter rally?  Or store it and risk prices potentially breaking below your breakeven levels?  How about an option that allows you to protect that price while still holding out for a potential rally.

Put Options Explained

If that last option appealed to you, then I’d say read on.  Now, how exactly that is possible?  It involves using something that you may have heard of in a passing conversation or two: a ‘put’ option.  Some may be well versed in put options, and that’s great.  However, I know there are plenty of people out there who have heard the term but aren’t familiar enough with put options to feel comfortable using them.  If you fall in that camp, you’re definitely not alone.  The fact that you’re reading this article right now is a great first step because it shows that you have the desire to learn and build your metaphorical tool bag. In short, a put option is an effective solution to the situation I talked about earlier – it allows you to protect your downside while still keeping your upside completely open.

A put option allows you to set a floor so that if prices go lower, you can sleep easy knowing the put option is gaining value to help offset some of the loss on the cash bushels.  At the same time, you’re still holding the physical bushels in the bin, so if we catch a winter rally like we saw in 2018 with weather issues in South America, then you can take advantage of the rally and sell the bushels at that higher price.  You’re protecting your downside while leaving your upside open.


Watch our Hedgucation 101 webinar to learn more about using futures and options  as part of your grain marketing plan >>


Next Steps: Protecting Your Bottom Line with Put Options

Naturally, I’m sure you’re thinking to yourself that there has to be a catch to this.  There isn’t.  You do have to purchase the put option, which indeed does cost money on the front end.  But the question you should ask yourself is: would you rather spend a few cents per bushel up front for peace of mind knowing you have your downside protected or would you rather risk losing an undetermined amount of money if prices fall and you don’t have that downside protection?  Knowing how much these markets can move, I’d personally consider protecting my bottom line to be my number one priority, even if it costs me a little bit up front.

Hedugation 101 Webinar

Filed Under: Ag Marketing

Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

Subscribe To The Blog

Footer

Site Navigation

  • Frequently Asked Questions
  • About Us
  • Customer Reviews
  • Contact Us
  • Futures Blog
  • Open a Futures Trading Account
  • Media Resources
  • Fund Your Account
  • Legal Notices

Contact Us

Daniels Trading
100 South Wacker Drive, Suite 1225
Chicago, IL 60606
+1.312.706.7600 Local / Int'l
+1.800.800.3840 Toll-Free
+1.312.706.7605 Fax

Connect with Us

Trustpilot

Copyright © 2019 · Daniels Trading. All rights reserved.

Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

  • Risk Disclosure
  • Privacy Policy
  • Terms of Use
  • Back to top