The Advantages of Options

CME Group offers the most comprehensive livestock risk management tools ever developed – options on Live Cattle, Feeder Cattle and Lean Hog futures. Producers can establish a floor price for the livestock they sell and a ceiling price for the livestock they buy without giving up profit opportunity. What’s more, all of this can be accomplished with one up-front cost – the premium. When options are purchased, there are no performance bond requirements. These features of options buying – limited risk, unlimited profit potential and the elimination of performance bond calls – explain why options should be considered in every producer’s marketing strategy.

Learning to use this tool requires the same attention that most new skills require: a little time and patience to become familiar with the vocabulary and to develop a comfort level with the concepts. But options aren’t that complicated. Some people find it useful to compare options to insurance: options can be purchased as a form of insurance to guard against price changes, just as home insurance or auto insurance
protect against damage to your possessions. The purchase price of an option, like an insurance premium, can be thought of as a business expense. Like insurance, options give protection in the event of adverse market conditions or can simply be allowed to lapse if the protection is not needed.

Details: Options on Livestock Futures