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Using a Cotton Options Strategy to Increase Revenues

Olga Isengildina, Darren Hudson, O. A. Cleveland and Cary W. Herndon


 
ABSTRACT

Changes in government programs and increased price volatility are causing cotton farmers to manage more price risks. A "Harvest Strategy" is suggested, which sells cotton at harvest, purchases an at-the-money July options contract and exercises this contract at expiration. The results of the analysis demonstrate that this strategy yields higher returns than the naive strategy of selling at harvest or storing and selling at a later date. The proposed strategy also limits the exposure to the downside price risk.



Reprinted from Proceedings of the 2000 Beltwide Cotton Conferences pp. 315 - 319
©National Cotton Council, Memphis TN

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Document last modified Saturday, Jun 17 2000