Lead hedging in LME using option structures

Forex Hedging | 

Published on: 14th  December 2020

Libor Transition– Impact on Indian corporates

In LME, lead can be hedged using futures and options. The market participants like the miners, producers, traders, hedge funds, bulk consumers often find it difficult to choose the exact instruments, strikes, timing, etc. In the case of futures, the obligation is the biggest deterrent whereas in options the premiums are expensive. So, low-cost appropriate option structures with effective monitoring systems may provide sufficient flexibility with much lower cost. Here the pricing plays a vital role. Because of the nonavailability of pricing easily, most of the participants do not use options or structures. 

We intend to present the option pricing to the participants of the LME Lead market. 

Few of the prices are given below with strategies.

Buy-side strategies for Lead :

3m Ref Price: 2077Decl Date 3rd Feb 2021 Prompt Date17 Feb 2021
InstrumentBuy Call Strike Sell Call StrikeSell Put StrikeCost (USD)
Plain Call 205075.00
Plain Call 207563.00
Plain Call 210053.00
Plain Call 212544.00
Bull Spread2050215040.00
Bull Spread2075217537.00
Bull Spread2100220031.00
Bull Spread2125222527.00
Buy side Seagull20502150195020.00
Buy side Seagull2075217519756.00
Buy side Seagull2100220019750.00
Buy side Seagull2100217519502.00
Reverse collar2125195025.00
Reverse collar2125197519.00
Reverse collar2125200010.00
Reverse collar2100195035.00
Reverse collar2100197529.00
Reverse collar2100200020.00

Sell-side strategies for Lead :

3m Ref Price: 2077Decl Date 3rd Feb 2021 Prompt Date17 Feb 2021
InstrumentBuy Put Strike Sell Put StrikeSell Call StrikeCost (USD)
Plain Put195025.00
Plain Put197531.00
Plain Put200040.00
Plain Put202549.00
Bear Spread2075197537.00
Bear Spread2075200028.50
Bear Spread2100197551.00
Bear Spread2100200042.00
Sell side Seagull2075197521753.00
Sell side Seagull2075197522009.00
Sell side Seagull21002000220014.00
Sell side Seagull21252025222526.00
Protective collar2050215015.00
Protective collar2075217534.50
Protective collar2100220054.00
Protective collar2125222575.00

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