Lead hedging in LME using option structures
Forex Hedging |Â
Published on: 14th  December 2020
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.Â
We intend to present the option pricing to the participants of the LME Lead market.Â
Few of the prices are given below with strategies.
Buy-side strategies for Lead :
| 3m Ref Price: 2077 | Decl Date | 3rd Feb 2021 | Prompt Date | 17 Feb 2021 |
|---|---|---|---|---|
| Instrument | Buy Call Strike | Sell Call Strike | Sell Put Strike | Cost (USD) |
| Plain Call | 2050 | 75.00 | ||
| Plain Call | 2075 | 63.00 | ||
| Plain Call | 2100 | 53.00 | ||
| Plain Call | 2125 | 44.00 | ||
| Bull Spread | 2050 | 2150 | 40.00 | |
| Bull Spread | 2075 | 2175 | 37.00 | |
| Bull Spread | 2100 | 2200 | 31.00 | |
| Bull Spread | 2125 | 2225 | 27.00 | |
| Buy side Seagull | 2050 | 2150 | 1950 | 20.00 |
| Buy side Seagull | 2075 | 2175 | 1975 | 6.00 |
| Buy side Seagull | 2100 | 2200 | 1975 | 0.00 |
| Buy side Seagull | 2100 | 2175 | 1950 | 2.00 |
| Reverse collar | 2125 | 1950 | 25.00 | |
| Reverse collar | 2125 | 1975 | 19.00 | |
| Reverse collar | 2125 | 2000 | 10.00 | |
| Reverse collar | 2100 | 1950 | 35.00 | |
| Reverse collar | 2100 | 1975 | 29.00 | |
| Reverse collar | 2100 | 2000 | 20.00 |
Sell-side strategies for Lead :
| 3m Ref Price: 2077 | Decl Date | 3rd Feb 2021 | Prompt Date | 17 Feb 2021 |
|---|---|---|---|---|
| Instrument | Buy Put Strike | Sell Put Strike | Sell Call Strike | Cost (USD) |
| Plain Put | 1950 | 25.00 | ||
| Plain Put | 1975 | 31.00 | ||
| Plain Put | 2000 | 40.00 | ||
| Plain Put | 2025 | 49.00 | ||
| Bear Spread | 2075 | 1975 | 37.00 | |
| Bear Spread | 2075 | 2000 | 28.50 | |
| Bear Spread | 2100 | 1975 | 51.00 | |
| Bear Spread | 2100 | 2000 | 42.00 | |
| Sell side Seagull | 2075 | 1975 | 2175 | 3.00 |
| Sell side Seagull | 2075 | 1975 | 2200 | 9.00 |
| Sell side Seagull | 2100 | 2000 | 2200 | 14.00 |
| Sell side Seagull | 2125 | 2025 | 2225 | 26.00 |
| Protective collar | 2050 | 2150 | 15.00 | |
| Protective collar | 2075 | 2175 | 34.50 | |
| Protective collar | 2100 | 2200 | 54.00 | |
| Protective collar | 2125 | 2225 | 75.00 |