Put options give the owner the right to sell at an agreed upon price, but not the obligation. Producers can protect against the possibility that commodity prices decrease while still benefiting if prices go up.
Here is how a Put Option works:
- Work with Associated Bank to determine the level of protection you need.
- Pay a small upfront premium.
- If the market price settles below the Put limit Associated Bank makes a payment to you. If the market price settles above the Put limit you make no further payment.
Put options provide commodity producers many benefits:
- Know the minimum sales price of the commodity for the hedge period.
- You benefit if prices increase.
- Automatic exercise of the option if it is in your favor.