Importer Option Strategies
Written by QuantArt Market
Forex Hedging |
Updated on : 22nd October March 2021
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.
- Import hedging with a low hedge ratio works best in most periods, but can backfire in terms of short-term volatility.
- 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
| Month | Mid Apr-21 | |
|---|---|---|
| Sl. No. | Strategy name | Cost |
| 1 | Forward | 0.25 |
| 2 | Plain Call strike at 72.5 | 0.46 |
| 3 | Plain Call strike at 72.74 | 0.34 |
| 4 | Plain Call strike at 73 | 0.24 |
| 5 | Plain Call strike at 73.5 | 0.12 |
| 6 | Plain Call strike at 72 | 0.81 |
| 7 | Call Spread (Buy Call at 72.5/ Sell Call at 73.5) | 0.34 |
| 8 | Call Spread (Buy Call at 72.5/ Sell Call at 74) | 0.40 |
| 9 | Call Spread (Buy Call at 72.5/ Sell Call at 74.5) | 0.43 |
| 10 | Call Spread (Buy Call at 73/ Sell Call at 74) | 0.18 |
| 11 | Call Spread (Buy Call at 73/ Sell Call at 75) | 0.23 |
| 12 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 71.5) | 0.42 |
| 13 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72) | 0.38 |
| 14 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72.25) | 0.32 |
| 15 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 71.5) | 0.38 |
| 16 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72) | 0.34 |
| 17 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72.25) | 0.29 |
| 18 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 71.5) | 0.32 |
| 19 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72) | 0.28 |
| 20 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72.25) | 0.22 |
| 21 | Seagull (Buy Call at 72.75/Sell Call at 73.75/Sell Put at 71.75) | 0.22 |
| 22 | Seagull (Buy Call at 72.75/Sell Call at 73.75/Sell Put at 72) | 0.19 |
| 23 | Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 72) | 0.12 |
| 24 | Seagull (Buy Call at 73/Sell Call at 75/Sell Put at 72) | 0.17 |
| 25 | Seagull (Buy Call at 72.74/Sell Call at 74/Sell Put at 71.5) | 0.27 |
| 26 | Capped Forward (72.5 to 74) | 0.20 |
| 27 | Capped Forward (72.5 to 74.5) | 0.24 |
| 28 | Seagull (Buy Call at 72.74/Sell Call at 74.5/Sell Put at 72.5) | 0.12 |
| 29 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72) | 0.38 |
| 30 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72) | 0.34 |
| 31 | Range Forward (Buy Call at 73/Sell Put at 72) | 0.18 |
| 32 | Range Forward (Buy Call at 72.75/Sell Put at 71.5) | 0.32 |
| 33 | Range Forward (Buy Call at 73.25/Sell Put at 71.75) | 0.14 |
| Month | Apr-21 | |
|---|---|---|
| Sl. No. | Strategy name | Cost |
| 1 | Forward | 0.49 |
| 2 | Plain Call strike at 72.5 | 0.73 |
| 3 | Plain Call strike at 72.96 | 0.49 |
| 4 | Plain Call strike at 73 | 0.47 |
| 5 | Plain Call strike at 73.5 | 0.30 |
| 6 | Plain Call strike at 72 | 1.09 |
| 7 | Call Spread (Buy Call at 72.5/ Sell Call at 73.5) | 0.44 |
| 8 | Call Spread (Buy Call at 72.5/ Sell Call at 74) | 0.55 |
| 9 | Call Spread (Buy Call at 72.5/ Sell Call at 74.5) | 0.62 |
| 10 | Call Spread (Buy Call at 73/ Sell Call at 74) | 0.29 |
| 11 | Call Spread (Buy Call at 73/ Sell Call at 75) | 0.41 |
| 12 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 71.5) | 0.58 |
| 13 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72) | 0.52 |
| 14 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72.25) | 0.47 |
| 15 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 71.5) | 0.51 |
| 16 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72) | 0.45 |
| 17 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72.25) | 0.39 |
| 18 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 71.5) | 0.40 |
| 19 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72) | 0.34 |
| 20 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72.25) | 0.29 |
| 21 | Seagull (Buy Call at 72.75/Sell Call at 73.75/Sell Put at 71.75) | 0.30 |
| 22 | Seagull (Buy Call at 72.75/Sell Call at 73.75/Sell Put at 72) | 0.26 |
| 23 | Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 72) | 0.19 |
| 24 | Seagull (Buy Call at 73/Sell Call at 75/Sell Put at 72) | 0.31 |
| 25 | Seagull (Buy Call at 72.96/Sell Call at 74/Sell Put at 71.5) | 0.27 |
| 26 | Capped Forward (72.5 to 74) | 0.32 |
| 27 | Capped Forward (72.5 to 74.5) | 0.39 |
| 28 | Seagull (Buy Call at 72.96/Sell Call at 74.5/Sell Put at 72.5) | 0.15 |
| 29 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72) | 0.52 |
| 30 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72) | 0.45 |
| 31 | Range Forward (Buy Call at 73/Sell Put at 72) | 0.37 |
| 32 | Range Forward (Buy Call at 72.95/Sell Put at 71.5) | 0.46 |
| 33 | Range Forward (Buy Call at 73.25/Sell Put at 71.75) | 0.31 |
| Month | Mid May-21 | |
|---|---|---|
| Sl. No. | Strategy name | Cost |
| 1 | Forward | 0.65 |
| 2 | Plain Call strike at 72.5 | 0.94 |
| 3 | Plain Call strike at 73.14 | 0.61 |
| 4 | Plain Call strike at 73.5 | 0.46 |
| 5 | Plain Call strike at 72 | 1.29 |
| 6 | Call Spread (Buy Call at 72.5/ Sell Call at 73.5) | 0.48 |
| 7 | Call Spread (Buy Call at 72.5/ Sell Call at 74) | 0.62 |
| 8 | Call Spread (Buy Call at 72.5/ Sell Call at 74.5) | 0.72 |
| 9 | Call Spread (Buy Call at 72.5/ Sell Call at 75) | 0.79 |
| 10 | Call Spread (Buy Call at 73/ Sell Call at 75) | 0.52 |
| 11 | Call Spread (Buy Call at 73/ Sell Call at 74) | 0.35 |
| 12 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 71.5) | 0.65 |
| 13 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72) | 0.57 |
| 14 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72.25) | 0.51 |
| 15 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 71.5) | 0.55 |
| 16 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72) | 0.47 |
| 17 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72.25) | 0.41 |
| 18 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 71.5) | 0.41 |
| 19 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72) | 0.34 |
| 20 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72.25) | 0.27 |
| 21 | Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 71.5) | 0.28 |
| 22 | Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 71.75) | 0.25 |
| 23 | Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 72) | 0.20 |
| 24 | Seagull (Buy Call at 73.14/Sell Call at 75/Sell Put at 71.5) | 0.39 |
| 25 | Capped Forward (72.5 to 74) | 0.33 |
| 26 | Capped Forward (72.5 to 74.5) | 0.43 |
| 27 | Seagull (Buy Call at 73.14/Sell Call at 74.5/Sell Put at 72.5) | 0.10 |
| 28 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72) | 0.57 |
| 29 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72) | 0.47 |
| 30 | Range Forward (Buy Call at 73/Sell Put at 72) | 0.52 |
| 31 | Range Forward (Buy Call at 73.15/Sell Put at 72.5) | 0.32 |
| 32 | Range Forward (Buy Call at 73.65/Sell Put at 72.65) | 0.07 |
| 33 | Range Forward (Buy Call at 73.25/Sell Put at 71.75) | 0.31 |
| Month | May-21 | |
|---|---|---|
| Sl. No. | Strategy name | Cost |
| 1 | Forward | 0.75 |
| 2 | Plain Call strike at 72.5 | 1.09 |
| 3 | Plain Call strike at 73.28 | 0.69 |
| 4 | Plain Call strike at 73.5 | 0.60 |
| 5 | Plain Call strike at 72 | 1.44 |
| 6 | Call Spread (Buy Call at 72.5/ Sell Call at 73.5) | 0.50 |
| 7 | Call Spread (Buy Call at 72.5/ Sell Call at 74) | 0.66 |
| 8 | Call Spread (Buy Call at 72.5/ Sell Call at 74.5) | 0.77 |
| 9 | Call Spread (Buy Call at 72.5/ Sell Call at 75) | 0.86 |
| 10 | Call Spread (Buy Call at 73/ Sell Call at 75) | 0.59 |
| 11 | Call Spread (Buy Call at 73/ Sell Call at 74) | 0.39 |
| 12 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 71.5) | 0.67 |
| 13 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72) | 0.57 |
| 14 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72.25) | 0.51 |
| 15 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 71.5) | 0.55 |
| 16 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72) | 0.46 |
| 17 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72.25) | 0.39 |
| 18 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 71.5) | 0.40 |
| 19 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72) | 0.30 |
| 20 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72.25) | 0.24 |
| 21 | Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 71.5) | 0.28 |
| 22 | Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 71.75) | 0.24 |
| 23 | Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 72) | 0.19 |
| 24 | Seagull (Buy Call at 73.28/Sell Call at 75.5/Sell Put at 71.5) | 0.42 |
| 25 | Capped Forward (72.5 to 74) | 0.32 |
| 26 | Capped Forward (72.5 to 74.5) | 0.43 |
| 27 | Seagull (Buy Call at 73.28/Sell Call at 74.5/Sell Put at 72.5) | 0.03 |
| 28 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72) | 0.57 |
| 29 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72) | 0.46 |
| 30 | Range Forward (Buy Call at 73/Sell Put at 72) | 0.62 |
| 31 | Range Forward (Buy Call at 73.3/Sell Put at 72.5) | 0.34 |
| 32 | Range Forward (Buy Call at 73.8/Sell Put at 72.8) | 0.03 |
| Month | Mid Jun-21 | |
|---|---|---|
| Sl. No. | Strategy name | Cost |
| 1 | Forward | 0.94 |
| 2 | Plain Call strike at 72.5 | 1.30 |
| 3 | Plain Call strike at 73.47 | 0.80 |
| 4 | Plain Call strike at 74 | 0.59 |
| 5 | Plain Call strike at 72.9 | 1.07 |
| 6 | Plain Call strike at 72 | 1.65 |
| 7 | Call Spread (Buy Call at 72.5/ Sell Call at 74) | 0.72 |
| 8 | Call Spread (Buy Call at 72.5/ Sell Call at 74.5) | 0.85 |
| 9 | Call Spread (Buy Call at 72.5/ Sell Call at 75) | 0.95 |
| 10 | Call Spread (Buy Call at 73/ Sell Call at 74) | 0.43 |
| 11 | Call Spread (Buy Call at 73/ Sell Call at 75) | 0.67 |
| 12 | Seagull (Buy Call at 72.5/Sell Call at 75/Sell Put at 71.5) | 0.83 |
| 13 | Seagull (Buy Call at 72.5/Sell Call at 75/Sell Put at 72) | 0.73 |
| 14 | Seagull (Buy Call at 72.5/Sell Call at 75/Sell Put at 72.25) | 0.67 |
| 15 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 71.5) | 0.72 |
| 16 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72) | 0.63 |
| 17 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72.25) | 0.56 |
| 18 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 71.5) | 0.59 |
| 19 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72) | 0.50 |
| 20 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72.25) | 0.43 |
| 21 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 71.5) | 0.40 |
| 22 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72) | 0.31 |
| 23 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72.25) | 0.25 |
| 24 | Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 72) | 0.21 |
| 25 | Seagull (Buy Call at 73/Sell Call at 74.5/Sell Put at 72) | 0.35 |
| 26 | Seagull (Buy Call at 73/Sell Call at 75/Sell Put at 72) | 0.45 |
| 27 | Seagull (Buy Call at 73.47/Sell Call at 75/Sell Put at 71.5) | 0.33 |
| 28 | Capped Forward (72.5 to 74.5) | 0.49 |
| 29 | Capped Forward (72.5 to 75.5) | 0.68 |
| 30 | Seagull (Buy Call at 73.47/Sell Call at 75.5/Sell Put at 72.5) | 0.18 |
| 31 | Seagull (Buy Call at 72.5/Sell Call at 75.5/Sell Put at 72) | 0.82 |
| 32 | Seagull (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 |
| Month | Jun-21 | |
|---|---|---|
| Sl. No. | Strategy name | Cost |
| 1 | Forward | 1.10 |
| 2 | Plain Call strike at 72.5 | 1.47 |
| 3 | Plain Call strike at 73.62 | 0.89 |
| 4 | Plain Call strike at 74 | 0.73 |
| 5 | Plain Call strike at 72.9 | 1.24 |
| 6 | Plain Call strike at 72 | 1.83 |
| 7 | Call Spread (Buy Call at 72.5/ Sell Call at 74) | 0.75 |
| 8 | Call Spread (Buy Call at 72.5/ Sell Call at 74.5) | 0.90 |
| 9 | Call Spread (Buy Call at 72.5/ Sell Call at 75) | 1.02 |
| 10 | Call Spread (Buy Call at 73/ Sell Call at 74) | 0.46 |
| 11 | Call Spread (Buy Call at 73/ Sell Call at 75) | 0.73 |
| 12 | Seagull (Buy Call at 72.5/Sell Call at 75/Sell Put at 71.5) | 0.87 |
| 13 | Seagull (Buy Call at 72.5/Sell Call at 75/Sell Put at 72) | 0.78 |
| 14 | Seagull (Buy Call at 72.5/Sell Call at 75/Sell Put at 72.25) | 0.72 |
| 15 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 71.5) | 0.75 |
| 16 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72) | 0.66 |
| 17 | Seagull (Buy Call at 72.5/Sell Call at 74.5/Sell Put at 72.25) | 0.60 |
| 18 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 71.5) | 0.61 |
| 19 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72) | 0.51 |
| 20 | Seagull (Buy Call at 72.5/Sell Call at 74/Sell Put at 72.25) | 0.45 |
| 21 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 71.5) | 0.40 |
| 22 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72) | 0.31 |
| 23 | Seagull (Buy Call at 72.5/Sell Call at 73.5/Sell Put at 72.25) | 0.24 |
| 24 | Seagull (Buy Call at 73/Sell Call at 74/Sell Put at 72) | 0.22 |
| 25 | Seagull (Buy Call at 73/Sell Call at 74.5/Sell Put at 72) | 0.37 |
| 26 | Seagull (Buy Call at 73/Sell Call at 75/Sell Put at 72) | 0.49 |
| 27 | Seagull (Buy Call at 73.62/Sell Call at 75/Sell Put at 71.5) | 0.29 |
| 28 | Capped Forward (72.5 to 74.5) | 0.52 |
| 29 | Capped Forward (72.5 to 75.5) | 0.74 |
| 30 | Seagull (Buy Call at 73.62/Sell Call at 75.5/Sell Put at 72.5) | 0.16 |
| 31 | Seagull (Buy Call at 72.5/Sell Call at 75.5/Sell Put at 72) | 0.88 |
| 32 | Seagull (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 |