|
|
|
Forum Newbie
Group: Forum Members
Last Login: 6/18/2010 8:11:04 AM
Posts: 3,
Visits: 12
|
|
Steve, I am new to FX options, I am planing to buy a bond in Real that pays a nice coupon and like to hedge my currency risk US$/Real as I am borrowing the US$ to buy the bond - the bond expires in Mid 2012 - so NDF's ( that I am considering ) are mostly offered for just 1 year, - so I would need to roll them over 2 1/2 times - or I could use BRL options, buying PUTS to hedge the currency risk - what do you suggest is the best strategy here ?
kind regards
BOND
|
|
|
|
|
Forum Guru
Group: Administrators
Last Login: 6/13/2011 7:57:49 PM
Posts: 54,
Visits: 375
|
|
Hi Bond, Thank you for your FX options question. If you are considering buying Real bonds for the interest rate differential between US and Brazil you will be subjecting your portfolio (at least theoretically) to potential Real weakness as judged by the higher interest rate in the BRL vs. USD. You could potentially purchase (USD/BRL) BRB calls to hedge BRL weakness. If BRL stays strong you earn a higher interest rate, if not, BRB calls could hedge BRL weakness. One consideration is the liquidity of BRB calls. Please make sure to determine the appropriate value that you are willing to pay for your BRB "hedge". Since the USD/BRL is not heavily traded, the bid ask spreads might be a bit wider than (EUR/USD) EUU or (USD/CAD) CDD. Steve
|
|
|
|
|
Forum Newbie
Group: Forum Members
Last Login: 6/18/2010 8:11:04 AM
Posts: 3,
Visits: 12
|
|
Dear Steve,
please excuse my very limited knowledge of FX Options but would I not buy PUTS instead of calls, for example if I have a potion of BP
( which thanks to GOD I do not ) and I am afraid it will go down I would buy a PUT on BP to hedge,..when buying calls on BRL I would earn money if BRL goes up and US$ down, so for example if BRL raises from 1.81 ( current ) to 1.78 to the US$,
One more question is ( please ) what number of puts / calls I need to buy to hedge my position for each 1 mill US$ worth of BRL bonds as the currency of settlement is always US$ with BRL bonds
such as the KFW bonds,..
many thanks
BOND
|
|
|
|