Democracy for Vancouver

One Comment

1. From Wikipedia:

   Commodities exchanges usually trade futures contracts on commodities, such as trading contracts to receive something, say corn, in a certain month. A farmer raising corn can sell a future contract on his corn, which will not be harvested for several months, and guarantee the price he will be paid when he delivers; a breakfast cereal producer buys the contract now and guarantees the price will not go up when it is delivered. This protects the farmer from price drops and the buyer from price rises.

   Speculators and investors also buy and sell the futures contracts to make a profit and provide liquidity to the system.

   It is like a covered call in the stock market. Presumably there is an argument it helps smooth out price changes thereby protecting farmers/investors from bigger losses and the subsequent harm that can do to the economy.

   I am not justifying the practice, just passing on what I understand to be the reason. I have been an owner of stock for 20 years and I have never bought a covered call. It never made sense to me to lose the upside appreciation potential in order to minimize the downside potential loss.

   But if I owned 100,000 acres of corn fields, I might see it very differently because I could not sell the unharvested corn at a moment’s notice like I can a stock that I am holding.

   [reply to this]

   1. Above written by bushtool on May 5th, 2008 at 6:00 pm (replies, if any, are attributed separately above).