Question
Suppose that a cotton farmer in Lubbock has planted cotton in April and expecting a harvest of 100,000 lbs. of cotton at the end of
Suppose that a cotton farmer in Lubbock has planted cotton in April and expecting a harvest of 100,000 lbs. of cotton at the end of September. The current cash price of cotton is 60 /lb. in the local market and the NYBOT October Cotton Futures Price is 60 /lb. The size of NYBOT October Cotton Futures is 50,000 lbs. The farmer decides to full hedge her expected cash position using a Put option on NYBOT October Cotton Futures with SP = 65 /lb. and premium P = 5 /lb. At the time of harvest, both cash price and Futures price fell -- CP = 55 /lb. and FP = 57 /lb. What would be the cotton farmer's net realized price (/lb.) after selling cotton in the cash market and lifting the hedge? Please enter just the numeric value.
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