Dairy Futures and Options Tutorial

You Can Think of Options as a Type of Price Insurance

• Do you insure your Car? Barn? Cows? Yourself?
• If you are a dairy producer, you can insure your milk price (e.g., set a floor price) via of buying a Put Option.
• This put option gives you he right, but not the obligation to sell a futures contract at some predetermined price, the strike price, in the future.
• You must pay a premium for this right.
• Unlike futures contracts there is no margin money or margin calls associated with buying and selling options.