In the chart above, as Dec’21 cotton futures (the blue line, above) have risen since last April, the premium for a 75 put option has gotten cheaper. That is because the the put option gives the right to have sold Dec’21 futures at 75 cents, which had intrinsic value when the underlying futures was below 75 cents. This erosion of the put option premium over time shows how put option premiums move opposite of the direction of the underlying futures price. This is important because if the underlying futures, the increasing put option premium would potentially act as an insurance payment (assuming a stable cash basis).
AS of January 14 the 75 put option costs a little under 5 cents per pound. If Dec’21 continues to rise into the upper 70s, the 75 put option will become increasingly affordable. A grower could purchase the put option, giving a minimum cash price of the put option strike price (75 cents) less the grower’s cash basis less the put option premium.