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Seth McDonald grows corn. In May, he decides to sell 3 contracts, about half of his expected crop, ...

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Seth McDonald grows corn. In May, he decides to sell 3 contracts, about half of his expected crop, ...

Seth McDonald grows corn. In May, he decides to sell 3 contracts, about half of his expected crop, for December delivery. The contract price is $3.65 per bushel and the contract size is 5,000 bushels. Shortly before the delivery date, corn is selling in the spot (immediate delivery) market for $3.85 per bushel.

▸ Seth will simply let the contract expire and sell his corn in the spot market.

▸ Seth can protect his profit by buying an offsetting contract.

▸ Seth has an opportunity loss of $3,000 because he must deliver corn at the lower price.

▸ Seth can hold on to his corn for several months and hope that the price to rises enough to offset his loss.

Textbook

Fundamentals of Investing

Edition: 14^th

Authors: Zutter, Smart

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Thanks for your help!!

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I appreciate what you did here, answered it right Smiling Face with Open Mouth

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