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Long term FX hedging insights: AUD/USD
The prevailing price of Aussie dollar is around US$0.7830.
Risk free rate is around 2% and 0.25% in Australia & the US respectively.
The market price of At-The-Money call option of AUD/USD with strike price at 0.7831 and 1Y maturity is trading at US$ 532.17.
Smaller gamma signifies delta is less likely to change which means that underlying position does not act severely.
As shown in the figure, delta is at 0.46 and gamma at 5065.22.
Thus, this ATM call ensures underlying holdings around 46,000k with least likely change in option premiums as gamma is at its low.
We feel on hedging grounds these instruments at current levels are good buy.
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Derivgam signifies ATM AUD/USD call with 6M maturity placed in haven
Thursday, June 18, 2015 10:58 AM UTC
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