Suppose the current spot price of corn is $20 a bushel. A corn farmer expects to produce 2,000 bushels at the end of the season, and she wants to ensure that she gets at least $18 per bushel. Call options on 1,000 bushels of wheat with a strike price of $15,000 and an expiration date at the end of the season are selling for $3,000. By selling call options on her corn crop, the farmer can guarantee that she gets at least $18 per bushel.

Question

Quizplus · Accepted Answer

Selling call options on wheat will not help the corn farmer guarantee a minimum price for her corn crop. She would need to sell call options on her own corn crop to achieve this goal.

Suppose the Current Spot Price of Corn Is $20 a Bushel