Corn options let a buyer take a view on price changes while paying a premium for a limited period. A call offers exposure to a rise; a put offers exposure to a fall. The size of the move and the premium determine whether the buyer makes money.
How corn options work
The examples use options on corn futures. A call gives the right to enter a long futures position at the strike price. A put gives the right to enter a short futures position at that price.
A livestock feeder may buy corn calls against a rise in feed costs. A grower may buy puts while retaining the opportunity to benefit from a higher cash selling price.
The cost of one option
One CBOT contract represents 5,000 bushels. The exchange quotes this product in cents per bushel; the examples convert those quotes into dollars. A premium of 20 cents equals $0.2 per bushel. At a premium of $0.2 per bushel, one option costs $1,000 ($0.2 × 5,000).
Assume the futures price and strike are both $4.5 per bushel. The call and put premiums are each $0.2 for comparison, not current quotes. Results below are at expiration, before fees, with any futures position from exercise immediately closed at the stated price.
Buying corn calls
Suppose you expect corn prices to rise and buy one $4.5 call for $1,000.
If the underlying future reaches $4.9 per bushel at expiration, buying at $4.5 gives an advantage of $0.4 per bushel. Across 5,000 units, that is $2,000. After the premium, your net profit is $1,000.
At $4.5 or below, the call expires worthless and the loss is $1,000. Breakeven is $4.7 per bushel: strike plus premium. At $4.6, the call has value but still loses $500 after its cost.
Buying corn puts
If you expect prices to fall instead, buying one $4.5 put costs $1,000 in this example.
At a futures price of $4.1 per bushel, selling at the strike gives an advantage of $0.4 per bushel. The option is worth $2,000 at expiration, leaving a $1,000 net profit after the premium.
At $4.5 or above, the put expires worthless. Breakeven is $4.3 per bushel. At $4.4, the price has fallen, but the put still loses $500: the move has not covered its premium.
Before expiration
An option can be sold to close before expiration when a market is available. Its price then includes the effect of remaining time and implied volatility, so an earlier trade need not break even at the expiration price calculated above.
The purchased option can lose its whole premium. Exercise can create a futures position requiring margin and exposing you to further gains or losses. An uncovered seller can lose more than the premium received.
Corn price chart
OANDA Corn CFD reference price. This broker CFD (contract for difference) is a market reference, not a spot price or an exchange futures contract. Prices and quoting units may differ from the contracts described in this guide. Check the widget timestamp and market status; prices may be delayed.
