ABSTRACT
Commodity options for cotton are now available. This article defines the basic terms used in trading options and discusses the application and use of options. With yield uncertainty, a larger part of expected production can be protected with less risk exposure than with futures contracts. Options give the cotton industry another pricing tool with a great amount of flexibility to assist in price risk management. They offer a type of insurance against adverse price turns that requires no margin deposits and allows buyers to participate in favorable rice moves.
|