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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Enigma who wrote (38246)	8/3/1999 3:55:00 PM
From: Zardoz	Read Replies (2) \| Respond to of 116753

I thought we are talking about FORWARDS? hedging ALWAYS* includes a sale into the spot market.* Well we aren't talking hedge. So you jumped off subject. Actually, what you wrote aint a hedge anyways. And it isn't a forward either, nor a future. What you described could be best call a "commodity swap". So which do you REALLY want to talk about? The fact that the producer has the 100,000 Oz neglects that he is operating a forward. But he may well use that commodity to sell futures on it. In which case he is technically doing covered call writing. But in my opinion, a simple covered call is not a hedged as you are open to oppositional risk. {Your assets drop in value, as spot does} So if you own the commodity, you'd need to write the call, buy the put to be called hedging. Or.... But most producers that hedge, are hedging against production that is still in the ground. And will be delivered after being produced. So a hedger will actually write a call that they he has no product for. This in my opinion is "unsecured" hedging. As a simple reservior breach can easily upset production. A hedger/producer can also buy the put to hedge against a drop as well. Each have their own risk traits. So your comment about a hedge always causing a sale into the spot market is WRONG. Since it's possible to write calls only to have them expire worthless, and you still own the commodity which has just finished being produced. In the mean time the hedgers pockets the yield premium. I'd be curious as to where you got this idea from? Hutch.