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Politics : Dutch Central Bank Sale Announcement Imminent?
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To: long-gone who wrote (8094)10/7/1999 8:09:00 PM
From: Hawkmoon  Read Replies (4) of 81087
 
A short position?

Let me get your scenario straight.

Let's say I'm short gold from $450/ounce and I want to hedge my risk in case my short position goes against me and gold spikes.

So I see Barrick is hedging their forward sales at $300/ounce and either selling "covered" calls or buying puts against their forward production.

I, the shorter, go out there and buy one of their call options or sell a put (obligating me to buy their gold at $300), but my short position is hedged against a spike in the price of gold and I can deduct the premium I pay for that protection from the gains I'm making on my short position.

But wait.. gold spikes up past my protective strike price and Barrick tells me they have the right to defer delivery of their hedged gold for 15 years and essentially sell their production at spot market price.

So here I am, the shorter, with no way to obtain delivery of that gold to cover my short position because Barrick can negate their obligation, to deliver gold to me at $300/ounce, tell me to screw off for 15 years, and sell that gold on the spot market.

Just why the heck would I be willing, as a shorter, to purchase such an option.

Sorry Richard, I need something more in depth as an explanation.

Anyone?

Regards,

Ron
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