Today's volatile propane market presents new challenges to retail businesses.
Rapid price movements of greater than 50 cents per gallon - once unheard of - are now becoming part of the seasonal landscape in propane wholesale markets.
As a result, retail propane marketers are now exposed to more risk to their bottom line margins than ever before.
A crucial argument for using options is that the maximum cost of the hedge is known up front (the option premium). Compare this to hedging with a physical pre-buy or a swap contract, where losses on the hedge can grow to surprisingly large amounts in a short time, and therefore must be monitored carefully.
Buying an option is a way to simplify the task of managing risk for a known and upfront fee, freeing up time and resources to devote to your core business.