A wheat farmer plants 1,000 acres the 1st March. The estimated production is 30 bushels per acre. The local spot price is $8.00 per bushel. She could sell that day a 1st December wheat futures contract at $8.40 per bushel for 30,000 bushels, or alternately, she could buy a 1st December put option with a strike price of $8.40 per bushel and pay a put option premium of $0.20 per bushel. In the scenario the 1st November she harvests the expected number of bushels and the local price is $7.20 per bushel, depending on the case, she either could buy that day a 1st December wheat futures contract at an expected delivery price of $7.40 per bushel for 30,000 bushels, or “close out” her position of the 1st December put option. Based on this information:

a) Prepare the hedging tables for both alternative hedging instruments, including the basis (in the case of future contract), the net gain or loss in the spot and futures/options markets, and the net hedged selling price. (15 Marks)
b) Present a graph of the hedge position for the wheat farmer holding the put option. (5 Marks)