Again, you are falling into the trap of substituting most-favorable hindsight scenario for factual reality. This is otherwise known as wishing.
- These hedges were almost definitely constructed to hedge against RISING SE Asian currencies, not (FREE)FALLING currencies. If I thought SEG was going to be a $20 stock in three months, I most definitely would not enter into a 3-month contract to buy it at $25.
- You're assuming linearity in the foreign cash flow-currency rate relationship. This cannot be assumed. While the relationship may approach linearity for small ranges, SEG was wrong in both magnitude and direction.
- There's only two ways of looking at this. You can, as I do, call it a very bad (but understandable, given the circumstances) bet, write it off, and move on.
- Alternatively, you can persist in the fiction that this is a hedge in which the only downside was that SEG conservatively gave up an undeserved windfall. If so, then you should treat the hedging losses as operating expenses and not as one-time charges. How do SEG's margins look in that context? Also, you should wonder why SEG is no longer playing the futures market. Volatility? Silly me, I thought that was why people hedged in the first place. |
