Consumers of commodities need to protect their budgets against increasing prices. By using a call option consumers pay a premium to limit their cost of inputs for a specific time frame. By purchasing a call option consumers are setting a maximum price level for their commodity inputs. A key benefit of a call option is that you benefit if prices fall. You are not locking in a fixed price, you are guarding against the prices going above some maximum level.
Here is how a Call Option works:
- Work with Associated Bank colleague to determine the level of protection you need.
- Pay a small upfront premium.
- If the market price settles above the Call limit Associated Bank makes a payment to you. If the market price settles below the Call limit you make no further payment.
Call options offer consumers of commodities stability in prices for inputs and allows for business planning:
- Know the maximum purchasing price of the commodity for the time period.
- You benefit if prices decline.
- Automatic exercise of the option if it is in your favor.