In a bearish market, a farmer may purchase a put option to secure a price for his harvested crop. A call option is an option to buy. In a bullish market, a livestock producer may purchase a call option to lock in the price of feed grains. Once an option contract is purchased, the farmer has three alternatives in utilizing his option contract. He can exercise the option, liquidate the option, or let the option contract expire.
Producers can also be sellers or writers of options.
The writer of an options contract is subject to margin calls. While the list of definitions and examples may not cover everything, it includes the basic terms a potential user of options contracts should know. This series includes the following NebGuides which may be obtained at your local Cooperative Extension office. Kenneth R. Bolen, Director of Cooperative Extension, University of Nebraska, Institute of Agriculture and Natural Resources.