PUT OPTIONS ON COTTON FUTURES CONTRACTS AND ALTERNATIVE MARKETING STRATEGIES.

The main objective of this study was to evaluate alternative marketing strategies involving options on cotton futures contracts during the period of 1973-84. To predict the options premiums that would have occurred at various points in this period of time, the study did intensive research on market premiums of options on cotton futures contracts from the beginning of trading on October 30, 1984 to the end of June, 1985. The research showed .that market premiums conformed closely to the premiums implied by Black Model of option pricing. This allowed an evaluation of alternative cotton marketing strategies. The results showed that, over the 12 year period, forward contracting and hedging by selling futures contracts would have lowered average income relative to simple cash sales. On the other hand the results showed that hedging by buying put options would have raised income over simple cash sale. Options may not only provide protection from falling price but may also raise farmers' average income.

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