Fuel Hedging using CL Call Options

It seems someone among you guys must know a certain low-cost effective way that can solve the hedging problem in general for fuel users. That'd be really really great!

So long!
 
Quote from atticus:

I am confused. Is this clown a truck driver? Owns a railroad? Logistics Co.? What exactly is he hedging?
More...

I tried to bring up this point pages ago. OP never answered.
 
Quote from bone:

From my experience as a commercial energy trader, the biggest hurdle in the past at least was or is the accounting means testing for FASB 133 compliance. In the past, the CL contract did not have a high enough positive correlation to Jet Fuel for an Airline to use it as a JP A or A-1 or JP B hedge. They frequently used Heating Oil or the ICE Gas/Oil contract or went OTC.

BTW, if you use a good broker like Amerex or ICAP Chapel Hill or TFS you can get a few thousand CL options ( and at a better bid / ask spread than the Nymex floor for a 50 lot ATM ) if you use the ICE Swaps or Nymex ClearPort for financial clearing.
More...

FAS used to be the bane of my existance in my previous Job. You have a physical crude cargo hedged with futures and the underlying price goes up (back in 2008 this was, it was always going up) you obviously get a MTM gain on your physical and MTM loss on your hedge. But you can only book the physical gain to your books when title has transfered to the end buyer, but you have to book the MTM change in your hedge every month. We were booking large losses every month which couldn't be offset by the gain to the physical, even though we were making bundles on the contango play!

we were limited to the amount of paper we could have open at month and quarter end as a result as management couldnt understand the 'losses' we were making, which in turn meant we couldnt play the contango with our physical bbls any more. Muppets.

We do an awful lot of ICE Gasoil options here, they're pretty liquid in London generaly get a 2 vol spread on them which considering the volume they trade in relative to brent and TI is pretty impressive!
 
For many commercial companies, the hedging person or group typically falls into the org chart for the CFO - which means they are stuck with the bean counters. And there has been much industry blow-back with how impractical and unworkable and untenable FASB 133 truly is or was. Revisions have been proposed in working groups.
 
Quote from bone:

For many commercial companies, the hedging person or group typically falls into the org chart for the CFO - which means they are stuck with the bean counters. And there has been much industry blow-back with how impractical and unworkable and untenable FASB 133 truly is or was. Revisions have been proposed in working groups.
More...

its only really the trading desk who understood it, everyone above, from the general manager of our division to the global head of trading didnt have a clue!
 
Quote from OddTrader:

There are several major factors that have caused me to cease this fuel hedging experiment.
More...

imo, this call options hedging is basically a long hedge. I think it can be used mainly for hedging Short term demand in order to meet any sudden increase of sales that exceeds previously planned (i.e. already properly hedged) level of hedge. Therefore it has only very limited use. And very expensive.
 
Quote from OddTrader:

imo, this call options hedging is basically a long hedge. I think it can be used mainly for hedging Short term demand in order to meet any sudden increase of sales that exceeds previously planned (i.e. already properly hedged) level of hedge. Therefore it has only very limited use. And very expensive.
More...

Ya, as a call is a hedge for any business with risk in a given commodity. Like Cargill hedging with Corn calls. Thanks so much, Captain Obvious.
 
Quote from atticus:

Ya, as a call is a hedge for any business with risk in a given commodity. Like Cargill hedging with Corn calls. Thanks so much, Captain Obvious.
More...

Thanks for your kind understanding, and the positive energy in this energy thread!

Quote from ogarbitrage:

---------------------------------------------------------------
Quote from atticus:

I am confused. Is this clown a truck driver? Owns a railroad? Logistics Co.? What exactly is he hedging?


------------------------------------------------------------------
I tried to bring up this point pages ago. OP never answered.
More...
 
Quote from bwolinsky:

If the intent was to hedge Fuel, I certainly don't get why RBOB GAS wasn't the first choice. Maybe liquidity, but there's no liquidity in CL options so that issue's moot.

This thread is littered with plagiarism, and the OP appears to have given up this thread after several losses.
More...

?????

http://www.cmegroup.com/market-data/volume-open-interest/energy-volume.html

Products; Volume; Open Interest

Crude Oil Future; 501,173; 1,586,964
Crude Oil Options; 102,679; 3,593,674

Volume: The number in this column represents the number
of contracts traded on the selected date for all CME Group venues
(Globex, Open Outcry, ClearPort/PNT, and all other executions)

Open Interest: Open interest represents the total number of contracts either long or short that have been entered into and not yet offset by delivery. Each open transaction has a buyer and seller,
but for calculation of open interest, only one side of the contract is counted.
 
You must log in or register to reply here.
Back
Top