Producers who hedge through the purchase of put options must remember that they may be:
A) reducing their profits compared to not hedging.
B) obligated to sell their product at a lower than market price.
C) increasing their overall risk.
D)facing unlimited price risk.

Question

Quizplus · Accepted Answer

Hedging through the purchase of put options allows producers to set a minimum price for their product, protecting against price drops. However, if the market price rises significantly, they might earn less than if they hadn't hedged, as they paid a premium for the put options and are not obligated to sell at the strike price.

Producers Who Hedge Through the Purchase of Put Options Must