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Buy Put
When to use: The buying of put options is a strategy used to establish a worst case price floor without booking (selling) a producer’s crop. This strategy can be used if a producer is unsure of their yield potential or the local cash basis is unfavorable. The puts place a floor on a producer’s price while allowing for an unlimited upside and a more favorable basis. Again, Expiration, Strike Price, and Premium are important factors that will be determined by Crop Risk.Profit Characteristics: Put options increase in value as the market price falls. At expiration, break-even point will be option strike price – price paid for option. For each cent below break-even, the option value increases by additional cent.Loss Characteristics: Loss limited to amount paid for option. Maximum loss realized if market ends above strike price. For each cent below strike price, the option loss decreases by additional cent.Examples: We will use the same example here that we used for the buying call options example. It's the middle of summer, there is a little weather uncertainty, and December corn futures have rallied to $2.70. You would like to protect the price of some corn but do not want to be obligated to deliver it at harvest. Also, you fear that corn prices could move higher if the weather does not improve but could also fall if there is a surprise rain event. A good way to guarantee a minimum price, not have a delivery obligation, and still be able to take advantage of higher prices if they occur later is to buy a put option. We will use the following assumptions to illustrate how this works. You will have to adjust your numbers to reflect your local basis conditions.
Just like the call option example, your entire price risk has been reduced to the 12 cent option premium. Even if December corn futures fall to $2.20 at harvest (and unpriced corn is worth $2.10 if the basis is still minus 10 cents), your put option has protected you from lower prices. It has gained value that can be added back to your cash selling price when you sell the option back to the market. When you bought the $2.70 put option you bought the right (but not the obligation) to sell December corn futures at $2.70. At option expiration, the right to sell $2.70 corn futures when the market is trading them at $2.20 is worth 50 cents per bushel. You paid 12 cents a 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 $2.10 sales price and your net corn value is $2.48 per bushel. What if the weather market continues and at harvest December corn futures have rallied to $3.20? Your put option will expire worthless (you lose the 12 cent premium) but you are free to sell corn at the higher market price available at that time. Your cash sale price would be 10 cents under the December futures or $3.10 per bushel. After accounting for the option that expired worthless, your net price is $2.98 per bushel. Bottom line: This is another good way to reduce your price risk exposure. In this example you have reduced your futures market price risk to the cost of the option premium, 12 cents. You have a worst case floor price in place and the ability to derive some benefit if the market rallies. Also, you are not subject to margin calls. Unlike the contract plus call option example, you have not locked in the basis. If it narrows you will benefit, if it widens you are penalized. Comparison of Buying Put Options vs. Other Marketing Tools: 
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Please carefully consider your financial condition prior to investing.