Purchase of a put option in corn means what?

Purchase of a put option in corn means what?

• A. The buyer must sell futures at a set price
• B. The buyer may, but is not required, to sell futures at a set price
• C. The buyer must buy futures at a set price
• D. The buyer must deliver corn

Answer: (B)

A put option on corn futures gives the holder the right, but not the obligation, to sell the futures contract at a specified price (the strike price) by expiration. When you buy this put, you pay a premium for that right. If the market price falls below the strike, you can exercise the option and sell the futures at the higher strike price, effectively locking in a better price, or you can sell the option itself for its value. If prices stay above the strike, you may let the option expire and lose only the premium. This is why the option describes that the buyer may, but is not required, to sell futures at a set price. The other statements imply obligations or actions that don’t align with how puts on futures function: a put does not force you to sell (that would be an obligation), it is not about buying futures (that would be a call), and it does not require delivering physical corn from owning a put on futures.

A put option on corn futures gives the holder the right, but not the obligation, to sell the futures contract at a specified price (the strike price) by expiration. When you buy this put, you pay a premium for that right. If the market price falls below the strike, you can exercise the option and sell the futures at the higher strike price, effectively locking in a better price, or you can sell the option itself for its value. If prices stay above the strike, you may let the option expire and lose only the premium.

This is why the option describes that the buyer may, but is not required, to sell futures at a set price. The other statements imply obligations or actions that don’t align with how puts on futures function: a put does not force you to sell (that would be an obligation), it is not about buying futures (that would be a call), and it does not require delivering physical corn from owning a put on futures.