# Buying Rapeseed Put Options to Profit from a Fall in Rapeseed Prices

If you are bearish on rapeseed, you can profit from a fall in rapeseed price by buying (going long) rapeseed put options.

## Example: Long Rapeseed Put Option

You observed that the near-month Euronext Rapeseed futures contract is trading at the price of EUR 292.50 per tonne. A Euronext Rapeseed put option with the same expiration month and a nearby strike price of EUR 290.00 is being priced at EUR 19.50/ton. Since each underlying Euronext Rapeseed futures contract represents 50 tonnes of rapeseed, the premium you need to pay to own the put option is EUR 975.00.

Assuming that by option expiration day, the price of the underlying rapeseed futures has fallen by 15% and is now trading at EUR 248.60 per tonne. At this price, your put option is now in the money.

### Gain from Put Option Exercise

By exercising your put option now, you get to assume a short position in the underlying rapeseed futures at the strike price of EUR 290.00. In other words, it also means that you get to sell 50 tonnes of rapeseed at EUR 290.00/ton on delivery day.

To take profit, you enter an offsetting long futures position in one contract of the underlying rapeseed futures at the market price of EUR 248.63 per tonne, resulting in a gain of EUR 41.40/ton. Since each Euronext Rapeseed put option covers 50 tonnes of rapeseed, gain from the long put position is EUR 2,070. Deducting the initial premium of EUR 975.00 you paid to purchase the put option, your net profit from the long put strategy will come to EUR 1,095.

 Long Rapeseed Put Option Strategy Gain from Option Exercise = (Option Strike Price - Market Price of Underlying Futures) x Contract Size = (EUR 290.00/ton - EUR 248.60/ton) x 50 ton = EUR 2,070 Investment = Initial Premium Paid = EUR 975.00 Net Profit = Gain from Option Exercise - Investment = EUR 2,070 - EUR 975.00 = EUR 1,095 Return on Investment = 112%

### Sell-to-Close Put Option

In practice, there is often no need to exercise the put option to realise the profit. You can close out the position by selling the put option in the options market via a sell-to-close transaction. Proceeds from the option sale will also include any remaining time value if there is still some time left before the option expires.

In the example above, since the sale is performed on option expiration day, there is virtually no time value left. The amount you will receive from the rapeseed option sale will be equal to it's intrinsic value.

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