Hedging disclosure norms
SEBI's circular of 15 November 2018, following the Uday Kotak Governance Committee, requiring listed companies to disclose commodity risk management policies and, for each commodity, the exposure and the extent hedged —…
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- BasisThe difference between the spot price and the futures price of an asset — positive when spot exceeds futures, negative when futures exceeds spot, and zero at expiry.
- Basis riskThe risk left over after hedging, because the exposure and the contract used to hedge it do not move identically — in size, in expiry date, or in what they are written on.
- Diagonal spreadTwo options of the same type on the same underlying with both a different strike and a different expiry — the most complicated of the three spread families, and the only one that varies on both axes.
- HedgingTaking a derivative position that moves opposite to an exposure you already have, so gains on one offset losses on the other and the future rate is locked in at a known level.
- Horizontal spreadTwo options of the same type and the same strike but different expiries — a position whose entire value is the difference between the two legs' time values, not a view on direction.
- Long straddleBuying a call and a put at the same strike and the same expiry — a bet that the underlying moves a long way in either direction, with two break-even points and a maximum loss equal to both premiums.
Where this is taught
Free preparation for NISM Series XVI← All terms