Explain how future contracts can be used for hedging and speculation?

Hedging: You have some stock you THINK might fall in price. Oh...you have some ConocoPhillips. You bought it at 20, it's now 40 and you're happy as a clam. But wait! You know Conoco's biggest chain of dealerships, the Flying J truck stop chain, is being purchased by Pilot, who owns a huge hunk of Marathon Oil. Translation: there is a distinct possibility Conoco's stock will go down because Pilot could start selling Marathon diesel at Flying J stores. To protect yourself against completely losing your ass over this deal, buy a one-year put in the $30-$35 price range depending on how risk-averse you are, and let things ride until the Pilot-Flying J merger is completed. (If you're seriously risk-averse you'd just get out of the position, but you'd hate yourself in the morning if the stock price went up after you did.)

Speculation: Let's deal in a nice cyclical stock--Brunswick. It's cyclical because of what they make--boats and Bowling center equipment. The stock goes down in the winter because people don't buy boats or replace bowling center equipment in the winter, and up in the summer because that's when people do both. If you'd like to speculate in Brunswick, make a prediction as to how low you think it's going to sink, sell puts for a little above that, and IF you were right you'll make out like a bandit.