The Right, Not the Duty - options, calls, puts and the payoff
The board’s OPTION box says “the RIGHT, not the duty, to buy at a fixed price; you pay a premium for it”, right beside the FUTURE box, where both sides must go through. This lesson is the difference between those two boxes, and what that freedom is worth at every price water could end at.
Education, not financial advice.
Before you start. From A Price Agreed for Next Season's Rice - forwards, futures, hedging and margin you need the future: an agreement to trade later at a price fixed today, binding on both sides. The farmer who locked in water at 100 was protected from a drought, but was stuck paying 100 even in a wet year when water fell to 80. This lesson gives her a way out of that, at a price.