Grain Guide 2018

A put option is an option to sell and will typically be used by a producer to determine a minimum price at which he can sell his product in future. The producer buys the put option and then pays a premium on the option. If the price increases from the date when the option was purchased until it expires, the producer is not obliged to make use of the option and the product can be sold at the higher price. When the price falls, he is assured of the minimum price at which he will sell. (See the example in TABLE 1 .) Basic calculation Price  Price  Forward price R2 500,00 R3 000,00 R2 000,00 Put strike price R2 500,00 R2 500,00 R2 500,00 Put premium R200,00 R200,00 R200,00 Net Safex price R2 300,00 R2 800,00 R2 300,00 Basic calculation Price  Price  Forward price R2 500,00 R3 000,00 R2 000,00 Put strike price R2 500,00 R2 500,00 R2 500,00 Put premium R200,00 R200,00 R200,00 Net Safex price R2 700,00 R2 700,00 R2 200,00 Basic calculation Price  Price  Forward price R2 500,00 R3 000,00 R2 000,00 Sell futures R2 500,00 R2 500,00 R2 500,00 Net Safex price R2 500,00 R2 500,00 R2 500,00 Table 1: Hypothetical price calculation for when a put option is bought and prices change. Table 2: Hypothetical price calculation for when a call option is bought and prices change. A call option is an option to buy and will typically be used by a miller/purchaser to determine a maximum price at which he will buy his product in future. The miller buys the call option and then pays a premium on the option. If the price falls from the date the option was purchased until it expires, the miller is not obliged to make use of the option and the product can be bought at the lower price. When the price increases, he is ensured of the maximum price at which he will buy. (See the example in TABLE 2 .) Table 3: Hypothetical price calculation for a short hedging when prices change. A short hedging is typically used by a producer who wants to protect himself against a fall in price. The producer will therefore sell futures on Safex at the forward price for that specific contract month and in that way he will secure his price at that level. 108 107 Storage & marketing Calculation of basic hedging possibilities