Texas/New Mexico Stateline | Theoretically you could buy a July 2011 $7.20 (futures price) call now for about $1.00 per bushel. So if wheat was $9.00 (futures price) at harvest that call would pay the difference between $9 and $7.20. You take that $1.80 and put it in your pocket, and deliver your grain to the elevator for $7.20 giving you an effective price of $9.00. Worst case is the price doesn't go up much or stays the same. You lose your $1.00. Like all insurance nowdays it is very expensive, but does pay off sometimes.
Edited to add: of course a $1.00 of that $1.80 is already yours so you only gained $.80 above your contract.
Edited by milofarmer1 9/8/2010 22:13
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buying calls as insurance
