Long Call as Alternative to Long Futures Hedge

What this video covers

• Why a buyer (processor, feed manufacturer, exporter) who must purchase the cash commodity later fears a price rise and needs a price ceiling
• How a long futures hedge locks the purchase price with no premium but surrenders the favorable downward move
• How a long call option sets a maximum purchase price while keeping the favorable downward move, net of premium paid
• The effective ceiling formula: strike price plus premium paid, and why subtracting the premium is a massive exam trap
• What happens to net cost in a rising market when the call is exercised versus a falling market when the call expires worthless
• Why a buyer uses a call, never a put, and why matching the hedger to the wrong option is a guaranteed wrong answer
• The perfect mirror image: sellers fearing price declines use long puts for floors, buyers fearing price rises use long calls for ceilings