Introduction to Options Trading in Cheese and Nonfat Dry Milk …

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options. Options trading offers another risk manage-. ment tool to cheese and nonfat dry milk ….. trading at $1.40 per pound? Your put option is worth- …

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Content
DAIRY MARKETS AND POLICY-ISSUES AND OPTIONS 1 No. M-13
INTRODUCTION TO OPTIONS TRADING IN CHEESE
AND NONFAT DRY MILK FUTURES CONTRACTS
Robert Cropp*
This paper is part of a series entitled “Dairy Markets and Policy-Issues and Options,”
a project of Cornell University’s Program on Dairy Markets and Policy.
February 1995
Trading in options for cheese and nonfat dry milk
futures contracts commenced on June 22, 1993 on the
New York Coffee, Sugar and Cocoa Exchange. Leaflet
M-12 provides an introduction to the purpose and
potential use of cheese and nonfat dry milk futures
contracts. This leaflet defines options, their purpose,
and the potential use of cheese and nonfat dry milk
options. Options trading offers another risk management
tool to cheese and nonfat dry milk manufacturers,
buyers, and dairy producers; one that may be preferable
to futures market hedging in some cases.
In many ways, options trading is similar to futures
contract trading. The same regulatory procedures generally
apply. Trading rules are similar. The same
players are involved (hedgers, speculators, brokers,
floor traders, locals, etc.). Placing trading orders is the
same. Since these aspects were covered in leaflet M-12,
they are not discussed here….