Question

Alfred is grain farmer that usually stores his soybeans at a local elevator. What would he do just to use the options market to create synthetic storage after he sells his beans at harvest?

Answer 1

Answer: Buy a Call Option

Step-by-step explanation:

A Call option gives the holder the right to buy an asset at a predetermined price and time in the future. If Alfred bought a call option on the soybeans, he could leave the soybeans with the writer of the call option until the time the option is exercised then he can claim it back.

That way Alfred would effectively have stored the soybeans with the writer because he was still going to get it back in future anyway.