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This is number four in a series of six NebGuides on agricultural options. It explains how to evaluate options vs futures contracts.
Options and futures contracts are similar. Both represent actions that occur in the future. Futures markets are contracts to either accept or deliver the actual physical commodity, while an option contract is a contract on the underlying futures contract. Options contracts give the farmer the right, but not the obligation, to buy or sell an underlying commodity. This underlying commodity is a futures contract. Due to these similarities and the fact that options are based on a futures contract, producers may question the value of using an options contract. To make a decision between using a futures contract or an options contract, producers need to evaluate both alternatives.