Fuel Hedging using CL Call Options
- Thread starter OddTrader
- Start date
You don't seem to have much edge. Why are you making these trades?
Hedge when you have to!
The objective of this thread is to demonstrate how this CL strategy could minimise the average annual cost of hedging.
The cumulative amount of trading losses will be used to calculate average weekly cost for equity hedging, rather than for speculating.
http://www.elitetrader.com/vb/showthread.php?s=&postid=3326722#post3326722
For speculating and chasing profits, there is a separate thread on ET about a Quick Trade system.
It is still unclear as to what you are hedging? Are you assuming an (/your) equity portfolio and crude have a negative correlation? Are your losses on CL being offset by gains in the equity?
In order for your 'hedge' to be effective, it needs to be offset somewhere.
My last reply was about hedging and speculating.
Obviously a long call options strategy is a long hedge.
http://www.investopedia.com/terms/l/longhedge.asp
http://www.businessdictionary.com/definition/long-hedge.html
http://agebb.missouri.edu/mgt/risk/lho.htm
You (whether a hedger or speculator) need to determine by yourself how you apply any correlation in your hedging process.
Obviously a long call options strategy is a long hedge.
http://www.investopedia.com/terms/l/longhedge.asp
http://www.businessdictionary.com/definition/long-hedge.html
http://agebb.missouri.edu/mgt/risk/lho.htm
You (whether a hedger or speculator) need to determine by yourself how you apply any correlation in your hedging process.
Do you have to purchase physical crude in the immediate term or are you protecting a short position in crude?
If not, then I do not see how your long calls are "hedges".
If not, then I do not see how your long calls are "hedges".
Applications of long hedge:
Q
http://www.businessdictionary.com/definition/long-hedge.html
Long Hedge
Definition
Transaction that secures an advantage or protection against a possible increase in the price of a traded item (commodity, financial instrument, security, etc.) that will be bought or sold in the future.
For a buyer or consumer, it provides at least a partial protection by securing future supply at a fixed ceiling price.
For a seller it locks in an advantageous floor price. Also called buy hedge, buying hedge, or purchasing hedge.
UQ
Q
http://www.businessdictionary.com/definition/long-hedge.html
Long Hedge
Definition
Transaction that secures an advantage or protection against a possible increase in the price of a traded item (commodity, financial instrument, security, etc.) that will be bought or sold in the future.
For a buyer or consumer, it provides at least a partial protection by securing future supply at a fixed ceiling price.
For a seller it locks in an advantageous floor price. Also called buy hedge, buying hedge, or purchasing hedge.
UQ
I structure, price, and trade hedges every day. I am very familiar w/ hedging. I do not believe you are.
In order to "hedge," you need to be hedging SOMETHING. From your posts it appears you're just buying long calls and calling it hedging instead of speculating.
Please just answer the following instead of posting definitions:
1) Will you be buying physical or paper crude/product/distillate in the immediate term?
2) Are you currently short crude futures?
In order to "hedge," you need to be hedging SOMETHING. From your posts it appears you're just buying long calls and calling it hedging instead of speculating.
Please just answer the following instead of posting definitions:
1) Will you be buying physical or paper crude/product/distillate in the immediate term?
2) Are you currently short crude futures?