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Buy Call
When to use: The buying of call options is a strategy used to repurchase a crop that has been booked (sold). In addition, calls could be used to protect Loan Deficiency Payments in periods of extremely low prices. When a producer buys calls to replace a booked crop the producer limits their downside while keeping an unlimited upside. The options Expiration, Strike Price, and Premium are important factors that will be determined by Crop Risk.Profit Characteristics: Call options increase in value as the market rises. At expiration, break-even point will be option’s strike price + premium paid for option. For each cent above break-even, the option value increases by an additional cent.Loss Characteristics: Loss limited to the premium paid for the option. Maximum loss realized if market ends below strike price. For each cent above strike price, the option loss is decreased by an additional cent.Examples: Let's say it's the middle of summer, we've got a little weather market going, and December corn futures have rallied to $2.70. You would like to contract some corn but your fear is that prices will move significantly higher. Your other fear is that the weather could improve and prices could fall substantially. A good way to guarantee a minimum price, yet still participate in any price rallies is to contract the corn and buy a call option. We will use the following assumptions to illustrate how this works. You will have to adjust the numbers to reflect your local basis conditions.
Your entire price risk has been reduced to the 12 cent option premium. Even if December corn futures fall back to $2.20 at harvest (and unpriced corn is worth $2.10 if the basis is still minus10 cents), your corn is valued at $2.48. Your option expires worthless (you lose the 12 cent premium) but that is a lot better than the 38 cents in value that you lost if you had not done anything. What if the weather market continues and at harvest December corn futures have rallied to $3.20? Your call option gains value that can be added to your booking price when you sell the option back to the market. When you bought the $2.70 call option you bought the right (but not the obligation) to buy December corn futures at $2.70. The right to buy corn futures at $2.70 when the market is trading them at $3.20 is worth 50 cents per bushel. You paid 12 cents per bushel for the right to do this. Your net return on the option is 50 cents minus 12 cents, or 38 cents. Add the 38 cents to the $2.60 booking price and your net corn value is $2.98 per bushel. Bottom line: This is a good way to reduce your price risk exposure. A weather market can do anything. In this example you have reduced you exposure to the cost of the option premium, 12 cents. You have a worst case price floor in place and the ability to derive some benefit if the market rallies. Also, you are not subject to margin calls. Comparison of Forward Contract Plus Call Option vs. Other Marketing Tools: 
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Please carefully consider your financial condition prior to investing.