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| Can one buy GRIP and have the same or better price protection at a lower cost than buying puts at CBOT?
Heres my logic, please point out the holes to me:
Say one has an expected county yield of 160 bu for corn and the grip spring price is $5.50 and he buys a 90% yield, 100% price grip contract with no harvest price option.
I contend what one really has bought is a 5.50 put on 144bu (.9 * 160) of corn production per acre if the final county yield number is exactly the 160 that was expected in the spring.
Dec 5.50 puts are currently trading around 61 cents. 144 bu times .61 for the puts bought at CBOT= $87.84 per acre.
If one can buy the grip policy for less than $87 acre and county yields are "normal", he can basically set an at the money put floor for less than doing it at the CBOT. Is this thinking correct? | |
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Buying GRIP instead of puts
