The blue line shows the settlement price of Dec’15 cotton futures on the ICE. The scale of the futures price is on the left side of the chart, in cents per pound. The red line shows the premium associated with a $0.70 strike put option on Dec’15 futures. The scale of the options premium is on the right side of the chart, also in cents per pound. The put option premium generally increases when Dec’15 futures are declining, and it gets cheaper when the futures price rises. The pattern of the Dec’15 ICE cotton was more of a sideways gyration in a not-quite-profitable range. Since there was no major downtrend in ICE futures, the purchase of put options in this situation would probably have been insurance that one didn’t collect on, at least not in a long-term hedging scenario.
Welcome to the educational website of Dr. John Robinson in the Department of Agricultural Economics at Texas A&M University.
The website focuses on farm-level implementation of strategies for Texas cotton growers to deal with yield and price risk. Contact me to receive a weekly e-mail notice of when the latest edition is posted on-line. In addition, we provide daily crop market news and commentary on Twitter (@aggie_prof) and also on the Master Marketer facebook page. We welcome your feedback and interaction in these social media.