Risk Management in Energy Sector Using Short Call Ladder Strategy

Abstract

The purpose of the paper is to focus on selected aspects of the hedging using of Short Call Ladder strategy created by barrier options. Given barrier option strategies belong to the appropriate tools widely used for risk management with an effective solution for limiting the loss from underlying asset´s price development. There is investigated the motivations and practice of firms with regard to using options in their risk management activities. Methodology of the paper is based on European up and knock-in call options together with standard call and barrier call options in analytical expression, which are used for investigation of hedging strategies in increasing markets. According to Haug model, barrier option prices are calculated, due to lack of real data in the market. Based on theoretical models of suitable hedged profit functions in analytical expressions, there are analysed their benefits and risks point of view in general. The requirements of zerocost option strategy have to be met. Our theoretical results are applied to the Energy Select Sector SPDR ETF, where designed hedged portfolios are analysed and compared to each other with the recommendations for investors. According to our findings we can recommend the hedging variant 2A or 4 as the best variant ensuring the lowest costs at expected intervals of the shares spot price at the maturity date. However, the selection of the right hedged portfolio is based on suitable combinations of the strike prices, the lower and the upper barriers for the best hedging profit function´s achievement. JEL classification:G11, G13, G32

Managing the equity risk using Short Put Ladder strategy by barrier options

“…Managing the price risk using Short Put Ladder strategy by vanilla options an agriculture is introduced by Harčariková (2018). Short Call Ladder strategy and its use in hedging in energy sector is http://dx.doi.org/10.21511/imfi.16 (4).2019.12 examined by Harčariková and Šoltés (2016), where all possible ways are presented.…”