Originally Posted by
alfaromeo
Not exactly. If you buy an option for a future purchase, then you have to pay for that option. If it is not exercised, then you lose the money on that option. If you buy a collar and the fuel price is below the floor price, then you lose money on the put option. If you buy a swap and the price of the commodity (usually home heating oil) is below the swap price, then you eat the difference. Also with swaps, you may have to post collateral to cover part of the future price, so you lose access to that cash until the swap is covered.
LOL...Yup, that's how they work. I was trying to give the "readers digest" version, sorry for being overly simplistic. Yes, cash does "change hands" on the put and therefore you account for them. Oh, and yes, I did so well in college accounting that I have other people do my taxes
Ferd