Cash Price Futures Price The Marketing Puzzle = Forward Contract + Basis Futures Contract Kim Anderson Cooperative Extension Crop Marketing Specialist Oklahoma State University Put Call Options
+ Call Options Forward Contract Put Options Futures Price Basis Price Futures Contract =
= Price Forward Contract Put Options Futures Price + Futures Contract Call Options Basis
Price Actual Dollars/Unit Received
Price $4. 10 = Futures Price $4. 50 + Basis -$0. 40
Futures Price of a Commodity Futures Contract
Basis Difference Between Two Prices
Price $4. 10 = Futures Price $4. 50 + Basis -$0. 40
Forward Contract A Contract requiring delivery (acceptance) of a specified quantity and quality of a specified commodity during a specified period at a specified location, at a specified price.
$4. 25 Price = Futures Price $4. 75 $4. 25 Forward Contract + Basis -$0. 50
Futures Contract A contract requiring delivery (short/sold) or a acceptance (long/bot/buy) of a specified quantity and quality of a commodity during a specified delivery period at a specified location, at a specified futures contract price.
$4. 10 Price = Futures Price + Basis $4. 50 -$0. 40 Forward Contract Futures Contract $4. 50
Put Options A contract which gives the buyer the "right" to sell a specified Futures Contract at a specified price. Premium (value) increases as price decreases.
Price = Forward Contract Buy 450 @$0. 30 Futures Price Futures Contract Put Option + $4. 50 Basis
Call Options A contract which gives the buyer the "right" to buy a specified Futures Contract at a specified price. Premium (value) increases as price increases.
Price = Forward Contract Futures Price Futures Contract Put Option + Basis $4. 50 Call Option Buy 450 @$0. 30
+ Call Options Forward Contract Put Options Futures Price Basis Price Futures Contract =
Price = Forward Contract Futures Price + Futures Contract Put Option Call Option Basis