Short-dated new-crop options (SDO) provide another means of price protection without long-term time investment.

Introduced by CME Group Chicago Board of Trade in January, there are only three contract months listed: December corn, November soybeans and July wheat. Corn and soybean contracts provide users with three expiration dates in May, July and September.

They reference the new-crop month but expire earlier than the traditional new-crop options. CBOT says they offer enhanced hedging flexibility as well as expanded new trading opportunities.

Cost of an at-the-money corn SDO with two months to expiration would be about 20¢per bushel, says Kurt Koester, president of AgriSource. That compares to about 40¢ for a regular December new-crop put with five months to expiration.

“For options, time is costly,” Koester says. “The new December SDO enables a grower to hedge December corn with options early.”

SDO open interest remains low, which can cause problems, says Chris Hurt, Purdue University Extension economist. “Lack of liquidity is always a concern, especially if you want to get out,” Hurt says. “It may be cent or two extra to get out of those positions. You may also have to pay extra to get in.

“But the advantageis to use such a program for insurance for a time period you want with new-crop, not old-crop, until the crop is further along into summer.”

Read more on short-dated new-crop options.