On a basic level what are options and options trading?
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Imagine you’re a farmer. You want to plan for the year and choose crops prudently. Unfortunately prices go up and down like a yoyo so you want certainty for harvest time. After all your overheads are fixed, why not your revenue? So you agree a price with a broker as you plant the seeds for a price for your crops to be completed at harvest time.
This is a future and both parties are locked into a future fixed price and quantity.
A similar contract is an option where a contract is made, but the broker can choose not to buy the crops at harvest time, especially if the contract price has risen above the spot price.
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