Dairy Futures and Options Tutorial

Types Of Options

There are two types of options:

• Purchasing a Put Option gives the owner the right to sell

  • a futures contract
  • at a fixed price
  • before an expiration date
  • Used to establish a price floor for your output. For example, can be used by a dairy farm operator to establish minimum Class III (and mailbox if basis is know)

• Purchasing a Call Option gives the owner the right to buy

  • a futures contract
  • at a fixed price
  • before an expiration date
  • Used to establish maximum cost of your dairy input. For example, can be used by cheese manufacturer to establish maximum milk cost