This is number five in a series of six NebGuides on Agricultural Options. It discusses how to use the options market effectively to protect us from our own emotions. An interesting aspect of marketing is psychological.
Many people make a mental decision to market grain when a specific price is reached.
However, during a rising market we can or should sell most of our crop during the highest part of the market. When using an options contract, the producer should realize that although risk is being assumed it can be managed at little cost. What usually happens is the market peaks and breaks fast, and we are left holding our soybeans. Because we would be buying an option with a strike price above the current market price, the premium value would be relatively expensive. In relation to the net price and the capital expenditure, we determine the premium is too high.