Assume historical expected basis of -$0.25 per bushel and a commission of $0.01 per bushel for corn.
A corn producer is using a “window” or “fence” strategy to protect against price risk. She buys a $4.00 put option on Dec. 2017 corn. The premium for the put option is $0.39. At the same time, she sells a $5.00 call option on Dec. 2017 corn. The premium for the call option is $0.05.
1. What is her floor price?
2. If the Dec. 2017 corn futures rises to $5.25, what is her expected net price?
3. If the Dec. 2017 corn futures falls to $3.00, what is her expected net price?