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Part 18 in a series: Learn to use puts as a price enhancer in your grain marketing plan

Roger Wright, Founder

August 26, 2022

5 Min Read
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Editor’s note: This is a continuation of weekly articles about the use of put options on commodity futures as a primary marketing tool to lock-in a minimum price or as a price “enhancer” of forward contracts or HTA contracts.

Here in August, we have been discussing the process to maximize the income from the sale of a previously purchased put option. Since put options increase in value as the futures price declines, the first objective to maximize put income is to sell the put when the underlying futures contract price is as low as possible. That is much easier than picking the top. Prices usually spend one to three months near the low, but only one to three days near the top. September wheat traded above $12.50 three days in May. The high was $12.85 on May 17.  

You can see on the chart below that September wheat traded below $7.75 fourteen days beginning July 11. It traded below $7.60 four days spread over four weeks and three days below $7.50. The sideways trading pattern, the seasonal low is in August to early September, and multiple technical factors indicated during August the low for the year was probably in place.

Picking a place to sell the puts for near maximum value was not difficult. Many of our clients sold the September puts when the futures price was in the $7.36 range, so they missed the ten-month low by 11 cents.  

24 Aug Sept 22 CBOT Wheat (003).png

Let’s see how the four mythical farmers who used different market plans fared. We will pretend they all sold their options when September wheat was $7.36 as did several of our clients.

Dan had contracted wheat at $11.00 on an HTA and bought the $9 and $10 puts for 29 cents per bushel for each HTA bushel. The $9 put was sold for $1.65 per bushel and the $10 put was sold for $2.65. His net profit on the puts was $18,600 (1.65 -.29 = $1.36; times 5,000 bu) + ($2.65 -.29 =$2.36; times 5,000 bu). For each HTA bushel, Dan added $3.72 of put profit to his $11.00 HTA for a net HTA price of $14.72. Not bad for selling his wheat $1.85 below the high of $12.85.   

Joe contracted wheat at $11.00 on a HTA and bought the $10 and $11 puts for 59 cents each. He risked more money on the puts than Dan, but he made more money on the puts. He sold the $10 put for $2.65 and the $11 put for $3.65. His put profit was $25,600 or $5.12 per HTA bushel. His net HTA price was $16.12. 

Don, who did not sell the futures, but bought a $9 put for 29 cents and then, when the futures gained a dollar, he bought a $10 put for 29 cents, just as Dan did. His net put profit was $3.72 per bushel was added to whatever his cash price was. If he sold the wheat off the combine in the first half of July, futures were between $8 and $9. Let’s say $8.50+/- the basis. Add $3.72 put profit to $8.50 and his net cash price was $12.22 +/- basis.

The worst thing that could have happened to Don would have been if wheat stayed in the $10 to $11 range. He would have probably broken even on his puts and netted $10 to $11. If futures had been above $11 on expiration day, both puts would have been worthless, which would mean he was selling wheat higher than his floor price. If wheat had gone to $20, the cost of his two puts (58 cents) would come off his $20 wheat, so his net would have been $19.42+/- basis. Of course, he would be happy his puts expired worthless. The other extreme would have been if September wheat went to $4.75 like it did in 2020. His net on the two puts would have been another $5.20 a bushel.

Junior, who did not sell futures, but bought the $10 put for 59 cents and then bought the $11 put for 59 cents. If he sold his wheat off the combine like Don did, he would have netted $13.62 +/- the basis.

Dan and Joe used the HTA as their primary marketing tool and the puts as a price enhancer. Don and Junior used the put options as the primary marketing tool. Take some time to understand how puts work. Many years you will be able to net a price above the top of the market. 

This is part 18 in a series. To learn more, read: 

Part one: Put options add value to your cash grain sales

Part two: Hedge your crops with no margin calls

Part three: Enhance profit opportunities with put options

Part four: Put options and no margin calls

Part five: When does a put option have no potential value?

Part six: Why are put options so expensive?

Part seven: Use puts to manage grain marketing risk

Part eight: What is time value of an option?

Part nine: How to calculate time value of an option

Part 10: Use puts with Hedge-to-Arrive to increase farm income

Part 11: Sample timeline to explain how wheat puts work

Part 12: Put options compliment futures contracts

Part 13: Put options: Understand premium and delta

Part 14: Find the best combination of marketing tools

Part 15: How to liquidate the put option for optimum value

Part 16: Maximize income from put option sale

Part 17: Put options: Time value versus intrinsic value

Wright is an Ohio-based grain marketing consultant. Contact him at (937) 605-1061 or [email protected]. Read more insights at

No one associated with Wright on the Market is a cash grain broker nor a futures market broker. All information presented is researched and believed to be true and correct, but nothing is 100% in this business.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.

About the Author(s)

Roger Wright

Founder, Wright on the Market

Grain marketing consultant Roger Wright has conducted hundreds of seminars and shared his expertise on weekly farm radio programs as part of his goal to teach marketing concepts to agricultural producers. He was raised on a dairy/hog farm in West Central Ohio and spent four years in the Marine Corps after achieving a Bachelor of Science degree in ag education. He previously taught college-level farm management courses and served as a branch manager for Heinold Commodities and Securities.

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