50 lines
2.5 KiB
Plaintext
50 lines
2.5 KiB
Plaintext
554
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A Complete Guide to the Futures mArket
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hedging applications
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The entire discussion in this chapter has been approached from the vantage point of the speculator.
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However, option-based strategies can also be employed by the hedger. T o illustrate how options can be
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used by the hedger, we compare five basic alternative strategies for the gold jeweler who anticipates a
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requirement for 100 ounces of gold in August. The assumed date in this illustration is April 13, 2015,
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a day on which the relevant price quotes were as follows: spot gold = $1,198.90, August gold futures
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= $1,200, August $1,200 gold call premium = $38.80, August $1,200 gold put premium = $38.70.
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The five purchasing alternatives are:
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5
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1. Wait until time of requirement. In this approach, the jeweler simply waits until August
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before purchasing the gold. In effect, the jeweler gambles on the interim price movement of
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gold. If gold prices decline, he will be better off. However, if gold prices rise, his purchase price
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will increase. If the jeweler has forward-contracted for his products, he may need to lock in his
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raw material purchase costs in order to guarantee a satisfactory profit margin. Consequently, the
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price risk inherent in this approach may be unacceptable.
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tabLe 35.28 probability-W eighted profit/Loss ratio Comparisons for “Neutral/V olatile” expected
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probability Distribution
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Long Straddle Short Straddle
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price range
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($/oz)
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average
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price ($/oz)
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assumed
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probability
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Gain/Loss at
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average price ($)
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probability-
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W eighted
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Gain/Loss ($)
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Gain/Loss at
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average price ($)
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probability-
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W eighted
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Gain/Loss ($)
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950–999.9 975 0.05 14,750 738 –14,750 –738
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1,000–1,049.9 1,025 0.08 9,750 780 –9,750 –780
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1,050–1,099.9 1,075 0.1 4,750 475 –4,750 –475
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1,100–1,149.9 1,125 0.12 –250 –30 250 30
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1,150–1,199.9 1,175 0.15 –5,250 –788 5,250 788
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1,200–1,249.9 1,225 0.15 –5,250 –788 5,250 788
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1,250–1,299.9 1,275 0.12 –250 –30 250 30
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1,300–1,349.9 1,325 0.1 4,750 475 –4,750 –475
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1,350–1,399.9 1,375 0.08 9,750 780 –9,750 –780
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1,400–1,449.9 1,425 0.05 14,750 738 –14,750 –738
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Probability-weighted profit/loss ratio: 3,985/1,635 = 2.44 1,635/3,985 = 0.41
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5 There is no intention to imply that the following list of alternative hedging strategies is all-inclusive. Many other
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option-based strategies are also possible. For example, the jeweler could buy a call and sell a put at the same
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strike price—a strategy similar to buying a futures contract (see Strategy 15). |