Hedging Risk课件.ppt

Variations on Payout Average (Tokyo) option: the payout is equal to the average commodity price over the contract’s lifetime minus the strike price Look back options: The strike price is equal to the minimum (call)/maximum (put) of the underlying commodity Ladder options: Gains are “locked in“ once the commodity hits predetermined price levels 精品文档 “Exotic” Options One example of an “exotic” would be a barrier option. In addition to a strike price, a barrier option has one (single barrier option) or two (double barrier option) “trigger” prices. For knock out options, if a trigger is crossed, the option is voided For knock in options, the option is activated once the trigger price has been hit The direction of the price change also matters: “down and in” “down and out” , “up and in” , “up and out” 精品文档 Why use options? 精品文档 Why use options? Hedging: as with futures, options can be used to insure against many different types of risk Speculation: as with futures, an option is basically a bet as to the direction/magnitude of a commodity price. 精品文档 A Protective Put A protective put involves the purchase of a stock and a put on that stock in equal quantities The combined value of the stock/put will never be lower than the strike price of the put. A protective put is like buying insurance against price declines. 精品文档 Protective Put On the right is the payout to buying a put with a strike price of $30. 精品文档 Protective Put Combine the put with a share of the underlying stock. 精品文档 Covered Call A covered call involves buying a stock and selling a call in equal proportions. The combination of the call/stock will never rise above the strike price of the call. This strategy might be used to collect income of a rising stock price without paying capital gains taxes 精品文档 Covered Call On the right is a the payout from selling a call with a strike price of $30. 精品文档 Covered Call Combine the call with the stock 精品文档 Straddle A straddle involves buying a put and a call on a s