Traders can buy call options on futures contracts related to them. Once the prices of commodities or assets rise, they can exercise call options and buy futures contracts at a lower strike price.
Then, the futures contract is sold at a high price according to the rising price, and there is a surplus after making up the paid royalties, which can make up for the losses caused by buying goods at a high price due to rising prices; You can also sell options directly at a high price and get royalties, which can play a role in maintaining value.
If the price of a commodity or asset falls instead of rising, the trader can give up exercising the option, which will only bring a little loss of royalties, which can be made up by the income from buying the commodity or asset at a low price.
Compared with hedging futures contracts directly in the futures market, this trading method is less risky and more flexible. For traders, buying a call option is actually equivalent to setting a maximum buying price, which can lock in the risk and ensure that traders can get the benefits brought by the price drop.