United States Chart Company

Had we purchased the $20,000 worth of cash market soybeans,and the crop was destroyed, its value would be zero. And we’d loseour whole 20 grand.If we bought a futures contract and the price of soybeans wentdown, we could also lose a large amount of money. Even if it onlydropped 50 cents a bushel before we could exit our contract, wecould lose $2,500. And theoretically, if for some reason we couldn’tget out of the trade soon enough, we could lose even more—a lotmore. There’s no way to know how much ahead of time (even thoughthere is a kind of “safety net” we can put into place, which you’lllearn about if you take our Course).But we didn’t put up $20,000 cash, and we didn’t put ourselves inthe iffy world of a futures contract. We bought an option to controlthose 5,000 bushels for a $1,000 premium. So even if the price ofsoybean drops to zero, the most we can lose is the $1,000 premiumplus transaction costs.Let’s take a look at soybeans again….One of the “buy signals” you learn to spot in our Course is whenthe price of a commodity moves above its previous high.This signal showed up on our price chart for soybeans. I’vereprinted the chart here—and circled the formation so you cansee it more clearly:22 AT-HOME PROFIT DIGEST