The price at which futures can be sold at is called the strike price of the option. Futures options are traded at the same exchanges that commodity futures contracts are traded. For Arkansas grain, oilseed and fiber producers, the primary futures option contracts of interest are soybeans, rice, wheat and corn traded at the Chicago Board of Trade and cotton traded at the New York Cotton Exchange. Producers can set a price floor for commodities in storage or in production using the futures option markets. For example, options on soybean futures are currently available for the May, July, August, September and November 1998 futures contracts.
Futures options expire in the month previous to the underlying futures contract.
Put option contracts are purchased through a futures broker. When a put option is purchased, the total cost of the option is the premium paid and commission charges. There are no additional margin deposits associated with owning futures options. With a put hedge, producers own the cash commodity and purchase a put option to set a price floor. A put hedge works because the prices of the commodity and put options move in opposite directions.