Exam Weight: Part 1 spans ~71% of the exam across Chapters 1-7 combined; the National Futures Association (NFA) does not publish per-unit weights.
Video Resources
What You'll Learn
In this unit, you'll cover:
- Long Put as an Alternative to a Short Futures Hedge: How a seller who owns the cash commodity (or will produce it) can buy a put instead of selling futures, why a put sets a minimum selling price (a floor), how to calculate that floor as strike minus premium, and why the floor lets the seller keep the gain if prices rise
- Long Call as an Alternative to a Long Futures Hedge: How a buyer who must purchase the cash commodity later can buy a call instead of buying futures, why a call sets a maximum purchase price (a ceiling), how to calculate that ceiling as strike plus premium, and why the ceiling lets the buyer keep the saving if prices fall
- Futures Hedge Versus Option Hedge: The mirror-image comparison of the two applications, why a futures hedge locks the price both ways at no premium while an option hedge protects only the adverse move, and how to decide which one fits a given hedger
Why This Matters
Every hedger already knows how to lock a price with futures. This unit answers a different question: when is it worth paying a premium to buy an option instead? One idea ties the whole unit together: a bought option protects the bad direction and keeps the good one, at the cost of the premium. Match the hedger to the right option and the arithmetic follows; flip them and every answer inverts.
Let's start with the long put as an alternative to a short futures hedge.