Question : How to hedge short term

[fildi101]

Hi all,

I'm in the process of selling a property, and would like to be able to hedge against a dramatic (30% or greater) fall in sterling against the euro and/or the dollar.

I need essentially to be able to protect the value of the equity in the flat, in between the signing of the contract and completion, against a surprise sudden fall in the pound in those weeks.

I'm not suggesting this is going to happen. I just want "black-swan" type insurance.

I don't need protection against smaller falls, so a regular leveraged spread-bet isn't the thing.

I'd need the hedge to be as cheap as possible, so I looked at options, but they don't seem to go to strikes that far out. I'm also rather confused by their pricing (i'm used to equity options though so can interpret advice .

so.. in summary how best to protect say £50,000 for 4 weeks from a 30% drop in sterling?

 

[TomTom]

if sterling reverses you stand to loose double ?
in the current climate best to let things roll.

 

[fildi101]

Tom,

No, the idea is I would only be exposed to a fall in sterling (or sterling remaining level). I'd pay a premium , like insurance, that I'd expect to lose.

GJ,

Cheers! that's just the sort of thing I was after. I bit more expensive than I had hoped and wont quite go to 30% (max 22% drop for the touch bets), but still, working through the numbers..

from sterling at currently 1.06 euros, I can protect against it falling to 0.83 euros ( 22% drop)

So, VERY roughly, £50,000 @ 53,000 euros, and can be protected from a fall to 41,000 euros for 32 days .. call it a £10,000 drop. From the site, it the premium is £600, to win £10,000 if we do see such a loss in the next month.

£600 is 1.2% of the £50k. Hmm 1.2% to protect against a 22% drop, with no coverage against a smaller drop.. well at least I know now.

thanks for the website

 

[fildi101]

Another option might be to trade a zero cost collar with another broker, buying the appropriate OTM GBP puts and selling the OTM GBP calls with strikes adjusted for zero cost. No idea how easy this would be for you to implement in that size.

Just a thought

GJ

a good one though, and possibly one that will fit better with my plans for the money on completion anyway (allocating across a few currencies , gbp, eur, usd, chf ).

I'll ponder this a little more.

DO you happen to know where on the the web I can get free forex options prices (preferable the OTC type, not a spreadbetting version with wide spreads). I've looked everywhere...

 

[Adamus]

How about

https://www.theice.com/productguide/productGroupDetail.jsp?groupId=16

or

World Currency Options - Options Chain, Most Actives, & Greeks