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Casasophia question- June 2011.
Dear Tutor I would like to find out why a call option was bought and not a put option when hedging using options. Thank you.
Ray
They are receiving $’s and therefore the transaction will be selling $’s and buying €’s.
The options have a contact size quoted in €’s, so since the transaction is buying €’s they want an option to buy €’s. i.e. they will purchase a call option on €’s.
I explain the ‘rules’ and the workings with options in detail in my free lectures on foreign exchange risk management.
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