Suppose you own a coffee plantation and are very concerned about price risk associated with this commodity. you want to guarantee that you will receive $1.50 per pound in a month regardless of what the spot price is at the time. You are selling three hundred thousand pounds.suppose you purchase insurance in the form of a put option on three hundred thousand pounds which guarantees you a minimum of $1.50 per pound. Suppose the option costs you $30,000.

Show the economics of such a transaction for alternative spot prices on delivery date of $1.25 per pound, $1.50 per pound or $1.75 per pound. Under what circumstances would you exercise your option?