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To: PGR88

Seems it would be quite different in commodities than stocks. If you own a silver mine, or a corn farm, I see nothing wrong with selling the future output either as a hedge or to raise cash to complete the harvest. But that’s because you have an expected delivery. Of course that comes with some financial risk if total production is higher than expected and the prices fall by expiration date, it is still a valid trading mechanism and keeps the production side (at least) fluid.

With stocks, there are many other mechanisms available. If you short you don’t have any expectation of future delivery. You could theoretically hold the short position indefinitely. Otherwise, you have to go out and actually buy it in the open market later on (close the short by covering the trade) at the then market price. It’s just a bet on the direction of the stock. And clearly people can do the same with commodities, like Duke & Duke. And clearly people with no farms or mines are trading in commodities.


143 posted on 01/31/2021 10:43:27 AM PST by monkeyshine (live and let live is dead)
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To: monkeyshine
If you own a silver mine, or a corn farm, I see nothing wrong with selling the future output either as a hedge or to raise cash to complete the harvest. But that’s because you have an expected delivery. Of course that comes with some financial risk if total production is higher than expected and the prices fall by expiration date,

If they are using the futures market to sell forward, no cash exchanges hands until settlement. And why would higher production be a problem. Lower production would be a problem, i.e. promised to deliver 100K bushels and a flood wiped out 50k so trouble. The farmer would have to go into the market and buy 50K to deliver. In real life they would go flat on those 50K before expiration and pay the cash difference.

154 posted on 01/31/2021 11:14:55 AM PST by BiglyCommentary
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