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When hedging with traded options, why do we always buy options, and don’t sell options? A lot of suggested answers are like that.
We can buy or sell options.
However, since we want the right to convert money at a fixed exchange rate, we need to buy the right and therefore pay a premium for it. Buying the option is buying the right to convert at a fixed rate. We can buy the right to buy the currency at a fixed rate (i.e. buy a call option) or we can but the right to sell the currency at a fixed rate (i.e. buy a put option).
Since most of companies are buying the options, will it change the price/demand of the options? Why are there someone is selling options? They are not hedging?
Thanks.The price of the options depends on the likelihood of the buyer exercising the option, which depends on the exchange rates.
Its like buying insurance for a car – everyone is buying it (not selling) but the price does not depend on how many are buying, it depends on how many are claiming.
I saw for collar, can sell options. Collar is OTC. So does it mean for OTC options can sell, but traded options cannot? Why?
Collar is not necessarily OTC. In the exam from memory the collars have always been created from traded options.
You can buy and sell traded options.Since buying traded options is for hedging purpose while selling is not, then is selling traded options for speculating purpose, pls?
What is the difference between delta hedge and options on stock index futures?
Thank you.A delta hedge is dealing in options on one particular share (the same share that you are trying to hedge the risk on).
The stock index is the average of the stock exchange as a whole, and so the amount you would have to trade in depends on the relative riskiness (the beta) of the particular share at risk.in case in the exams i have been given the following
a) a US company imports from UK, hence expect invoice in POUND.
what option (Put or Call) will he buy when is in OTC and when is In the Counter.b) A US company exports to UK and Invoiced in POUND.
what option (Put or Call) will he buy when is in OTC and when is In the Counter.
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