4.3.2.2. Long Calls
For greater protection against foreign exchange risk, an importer might choose to purchase a long at-the-money (or near-the-money) call. Like a protective put for hedgers who are long inventory, a long call will eliminate all upside risk except for the cost of the premium plus brokerage commissions. It will also enable the hedger to capture most of the profits to be earned from falling market prices.
|
Table V. Long Call December Euros |
|||||||
|
Expected Euro Price |
Short Futures |
Long Call |
Net Gain/Loss |
Net Import Cost |
|||
|
Cash Price |
Gain/Loss |
Strike Price |
Gain/Loss |
Premium Loss |
|||
|
1.07 |
1.12 |
0.05 |
1.12 |
0 |
-0.02 |
0.03 |
1.09 |
|
1.08 |
1.12 |
0.04 |
1.12 |
0 |
-0.02 |
0.02 |
1.10 |
|
1.09 |
1.12 |
0.03 |
1.12 |
0 |
-0.02 |
0.01 |
1.11 |
|
1.10 |
1.12 |
0.02 |
1.12 |
0 |
-0.02 |
0 |
1.12 |
|
1.11 |
1.12 |
0.01 |
1.12 |
0 |
-0.02 |
-0.01 |
|