Importer Option Strategies

Written by QuantArt Market

Forex Hedging | 

Updated on : 22nd October  March 2021

Best Hedging Strategy For Importers, import port

Import hedging in USDINR is all about potential cost savings vis-a-vis forward hedge. In import hedging, the forward premium imposes a significant cost of hedging and the endeavour of any hedging strategy including that which uses option is to reduce the cost of hedging below the forward cost in a way that protects the risk in a meaningful way.

 

  1. Import hedging  with a low hedge ratio works best in most periods, but can backfire in terms of short-term volatility.
  2. To ensure a good hedge ratio with a lower potential costs, option structures are the go-to strategies for imports.

    • Plain vanilla call options are costly due to high forward premium and hence can function well only if appropriate strike prices are chosen and cost is optimized.
    • Instead in range-bound markets low cost structures such a call spreads are useful in giving adequate protection while resulting in lower cost.
    • Seagulls and capped forwards work very well in most periods when INR depreciation is limited and they can help manage the hedge ratio constraints required as per risk management policies.
    • Import hedging strategies using options require constant monitoring and dynamic management to make sure that such partial hedge structures described above do not result in large loss.

Some of the costs associated with different hedging strategies are listed below.

 

Please find below the pricing.

Spot Reference :72.50

MonthMid Apr-21 
Sl. No.Strategy nameCost
1Forward0.25
2Plain Call strike at 72.50.46
3Plain Call strike at 72.740.34
4Plain Call strike at 730.24
5Plain Call strike at 73.50.12
6Plain Call strike at 720.81
7Call Spread (Buy Call at 72.5/ Sell Call at 73.5)0.34
8Call Spread (Buy Call at 72.5/ Sell Call at 74)0.40
9Call Spread (Buy Call at 72.5/ Sell Call at 74.5)0.43
10Call Spread (Buy Call at 73/ Sell Call at 74)0.18
11Call Spread (Buy Call at 73/ Sell Call at 75)0.23
12Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 71.5)0.42
13Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72)0.38
14Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72.25)0.32
15Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 71.5)0.38
16Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72)0.34
17Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72.25)0.29
18Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 71.5)0.32
19Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72)0.28
20Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72.25)0.22
21Seagull (Buy Call at 72.75/Sell Call at 73.75/Sell Put at 71.75)0.22
22Seagull (Buy Call at 72.75/Sell Call at 73.75/Sell Put at 72)0.19
23Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 72)0.12
24Seagull (Buy Call at 73/Sell Call at 75/Sell Put at 72)0.17
25Seagull (Buy Call at 72.74/Sell Call at 74/Sell Put at 71.5)0.27
26Capped Forward (72.5 to 74)0.20
27Capped Forward (72.5 to 74.5)0.24
28Seagull (Buy Call at 72.74/Sell Call at 74.5/Sell Put at 72.5)0.12
29Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72)0.38
30Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72)0.34
31Range Forward (Buy Call at 73/Sell Put at 72)0.18
32Range Forward (Buy Call at 72.75/Sell Put at 71.5)0.32
33Range Forward (Buy Call at 73.25/Sell Put at 71.75)0.14
MonthApr-21 
Sl. No.Strategy nameCost
1Forward0.49
2Plain Call strike at 72.50.73
3Plain Call strike at 72.960.49
4Plain Call strike at 730.47
5Plain Call strike at 73.50.30
6Plain Call strike at 721.09
7Call Spread (Buy Call at 72.5/ Sell Call at 73.5)0.44
8Call Spread (Buy Call at 72.5/ Sell Call at 74)0.55
9Call Spread (Buy Call at 72.5/ Sell Call at 74.5)0.62
10Call Spread (Buy Call at 73/ Sell Call at 74)0.29
11Call Spread (Buy Call at 73/ Sell Call at 75)0.41
12Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 71.5)0.58
13Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72)0.52
14Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72.25)0.47
15Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 71.5)0.51
16Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72)0.45
17Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72.25)0.39
18Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 71.5)0.40
19Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72)0.34
20Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72.25)0.29
21Seagull (Buy Call at 72.75/Sell Call at 73.75/Sell Put at 71.75)0.30
22Seagull (Buy Call at 72.75/Sell Call at 73.75/Sell Put at 72)0.26
23Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 72)0.19
24Seagull (Buy Call at 73/Sell Call at 75/Sell Put at 72)0.31
25Seagull (Buy Call at 72.96/Sell Call at 74/Sell Put at 71.5)0.27
26Capped Forward (72.5 to 74)0.32
27Capped Forward (72.5 to 74.5)0.39
28Seagull (Buy Call at 72.96/Sell Call at 74.5/Sell Put at 72.5)0.15
29Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72)0.52
30Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72)0.45
31Range Forward (Buy Call at 73/Sell Put at 72)0.37
32Range Forward (Buy Call at 72.95/Sell Put at 71.5)0.46
33Range Forward (Buy Call at 73.25/Sell Put at 71.75)0.31
MonthMid May-21 
Sl. No.Strategy nameCost
1Forward0.65
2Plain Call strike at 72.50.94
3Plain Call strike at 73.140.61
4Plain Call strike at 73.50.46
5Plain Call strike at 721.29
6Call Spread (Buy Call at 72.5/ Sell Call at 73.5)0.48
7Call Spread (Buy Call at 72.5/ Sell Call at 74)0.62
8Call Spread (Buy Call at 72.5/ Sell Call at 74.5)0.72
9Call Spread (Buy Call at 72.5/ Sell Call at 75)0.79
10Call Spread (Buy Call at 73/ Sell Call at 75)0.52
11Call Spread (Buy Call at 73/ Sell Call at 74)0.35
12Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 71.5)0.65
13Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72)0.57
14Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72.25)0.51
15Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 71.5)0.55
16Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72)0.47
17Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72.25)0.41
18Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 71.5)0.41
19Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72)0.34
20Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72.25)0.27
21Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 71.5)0.28
22Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 71.75)0.25
23Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 72)0.20
24Seagull (Buy Call at 73.14/Sell Call at 75/Sell Put at 71.5)0.39
25Capped Forward (72.5 to 74)0.33
26Capped Forward (72.5 to 74.5)0.43
27Seagull (Buy Call at 73.14/Sell Call at 74.5/Sell Put at 72.5)0.10
28Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72)0.57
29Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72)0.47
30Range Forward (Buy Call at 73/Sell Put at 72)0.52
31Range Forward (Buy Call at 73.15/Sell Put at 72.5)0.32
32Range Forward (Buy Call at 73.65/Sell Put at 72.65)0.07
33Range Forward (Buy Call at 73.25/Sell Put at 71.75)0.31
MonthMay-21 
Sl. No.Strategy nameCost
1Forward0.75
2Plain Call strike at 72.51.09
3Plain Call strike at 73.280.69
4Plain Call strike at 73.50.60
5Plain Call strike at 721.44
6Call Spread (Buy Call at 72.5/ Sell Call at 73.5)0.50
7Call Spread (Buy Call at 72.5/ Sell Call at 74)0.66
8Call Spread (Buy Call at 72.5/ Sell Call at 74.5)0.77
9Call Spread (Buy Call at 72.5/ Sell Call at 75)0.86
10Call Spread (Buy Call at 73/ Sell Call at 75)0.59
11Call Spread (Buy Call at 73/ Sell Call at 74)0.39
12Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 71.5)0.67
13Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72)0.57
14Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72.25)0.51
15Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 71.5)0.55
16Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72)0.46
17Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72.25)0.39
18Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 71.5)0.40
19Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72)0.30
20Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72.25)0.24
21Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 71.5)0.28
22Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 71.75)0.24
23Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 72)0.19
24Seagull (Buy Call at 73.28/Sell Call at 75.5/Sell Put at 71.5)0.42
25Capped Forward (72.5 to 74)0.32
26Capped Forward (72.5 to 74.5)0.43
27Seagull (Buy Call at 73.28/Sell Call at 74.5/Sell Put at 72.5)0.03
28Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72)0.57
29Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72)0.46
30Range Forward (Buy Call at 73/Sell Put at 72)0.62
31Range Forward (Buy Call at 73.3/Sell Put at 72.5)0.34
32Range Forward (Buy Call at 73.8/Sell Put at 72.8)0.03
MonthMid Jun-21 
Sl. No.Strategy nameCost
1Forward0.94
2Plain Call strike at 72.51.30
3Plain Call strike at 73.470.80
4Plain Call strike at 740.59
5Plain Call strike at 72.91.07
6Plain Call strike at 721.65
7Call Spread (Buy Call at 72.5/ Sell Call at 74)0.72
8Call Spread (Buy Call at 72.5/ Sell Call at 74.5)0.85
9Call Spread (Buy Call at 72.5/ Sell Call at 75)0.95
10Call Spread (Buy Call at 73/ Sell Call at 74)0.43
11Call Spread (Buy Call at 73/ Sell Call at 75)0.67
12Seagull (Buy Call at 72.5/Sell Call at 75/Sell Put at 71.5)0.83
13Seagull (Buy Call at 72.5/Sell Call at 75/Sell Put at 72)0.73
14Seagull (Buy Call at 72.5/Sell Call at 75/Sell Put at 72.25)0.67
15Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 71.5)0.72
16Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72)0.63
17Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72.25)0.56
18Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 71.5)0.59
19Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72)0.50
20Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72.25)0.43
21Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 71.5)0.40
22Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72)0.31
23Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72.25)0.25
24Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 72)0.21
25Seagull (Buy Call at 73/Sell Call at 74.5/Sell Put at 72)0.35
26Seagull (Buy Call at 73/Sell Call at 75/Sell Put at 72)0.45
27Seagull (Buy Call at 73.47/Sell Call at 75/Sell Put at 71.5)0.33
28Capped Forward (72.5 to 74.5)0.49
29Capped Forward (72.5 to 75.5)0.68
30Seagull (Buy Call at 73.47/Sell Call at 75.5/Sell Put at 72.5)0.18
31Seagull (Buy Call at 72.5/Sell Call at 75.5/Sell Put at 72)0.82
32Seagull (Buy Call at 72.5/Sell Call at 75/Sell Put at 72)0.73
Range Forward (Buy Call at 73/Sell Put at 72)0.80
Range Forward (Buy Call at 73.45/Sell Put at 72.5)0.446185944
Range Forward (Buy Call at 74.2/Sell Put at 72.7)0.104722052
MonthJun-21 
Sl. No.Strategy nameCost
1Forward1.10
2Plain Call strike at 72.51.47
3Plain Call strike at 73.620.89
4Plain Call strike at 740.73
5Plain Call strike at 72.91.24
6Plain Call strike at 721.83
7Call Spread (Buy Call at 72.5/ Sell Call at 74)0.75
8Call Spread (Buy Call at 72.5/ Sell Call at 74.5)0.90
9Call Spread (Buy Call at 72.5/ Sell Call at 75)1.02
10Call Spread (Buy Call at 73/ Sell Call at 74)0.46
11Call Spread (Buy Call at 73/ Sell Call at 75)0.73
12Seagull (Buy Call at 72.5/Sell Call at 75/Sell Put at 71.5)0.87
13Seagull (Buy Call at 72.5/Sell Call at 75/Sell Put at 72)0.78
14Seagull (Buy Call at 72.5/Sell Call at 75/Sell Put at 72.25)0.72
15Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 71.5)0.75
16Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72)0.66
17Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72.25)0.60
18Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 71.5)0.61
19Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72)0.51
20Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72.25)0.45
21Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 71.5)0.40
22Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72)0.31
23Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72.25)0.24
24Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 72)0.22
25Seagull (Buy Call at 73/Sell Call at 74.5/Sell Put at 72)0.37
26Seagull (Buy Call at 73/Sell Call at 75/Sell Put at 72)0.49
27Seagull (Buy Call at 73.62/Sell Call at 75/Sell Put at 71.5)0.29
28Capped Forward (72.5 to 74.5)0.52
29Capped Forward (72.5 to 75.5)0.74
30Seagull (Buy Call at 73.62/Sell Call at 75.5/Sell Put at 72.5)0.16
31Seagull (Buy Call at 72.5/Sell Call at 75.5/Sell Put at 72)0.88
32Seagull (Buy Call at 72.5/Sell Call at 75/Sell Put at 72)0.78
Range Forward (Buy Call at 73/Sell Put at 72)0.94
Range Forward (Buy Call at 73.6/Sell Put at 72.5)0.518020126
Range Forward (Buy Call at 74.35/Sell Put at 72.85)0.113282863

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