Analysis Of Hedging And Options Against Risk Management

With the continuous development of economic globalization as well as our economy entering the phase of New Normal Mode and the continued strengthening of China economy opening up to the world,Chinese enterprises must face the various external risks and challenges to realize long,stable and healthy development in international competition.To the enterprises,the turbulent changes of financial market,especially the risk of fluctuation of the prices of the international batch commodities have already become the key factor influencing the success or failure of corporation management.The companies need to find some effective methods to prevent from the risk of market price fluctuation and transfer the various risks brought by the price fluctuation.The universal practice in the contemporary world is to use the market of financial derivatives to hedge price risks through the unique risk transfer function of commodity futures market and option market.By scientific and standardized operation and using financial derivatives as the tools of risk management,the management risks will be controlled within a certain range so that the corporations could operate and develop stably.As the largest natural rubber consumer,China's average annual consumption of natural rubber is more than 5 million tons,accounting for about 40% of the global total consumption.Natural rubber industry is an important strategic material,and its price fluctuation has a certain impact on national economic production.For the upstream and downstream industry chain related to natural rubber industry,a management tool that can effectively avoid the risk of price fluctuation is urgently needed.Through correlation analysis and regression analysis,the results display that there is a strong correlation between the spot price of natural rubber and the futures price of natural rubber,and there is a significant relationship between the fluctuation of both prices.After the development of natural rubber varieties in Shanghai Futures Exchange for many years and the high linkage with the international market,the futures prices of domestic natural rubber have been widely adopted in the industry.More and more enterprises are pricing based on the futures prices of natural rubber,and the futures prices are also providing sensitive and accurate reference for the operation of enterprises.In the meantime,natural rubber options will be officially listed on January 28,2019,which means that enterprises have more choices when choosing risk management tools.The main risk faced by natural rubber enterprises in business operation is the risk incurred by commodity price fluctuation.In this context,enterprises use the characteristics of futures market and option market through financial derivatives market,and choose as a risk management tool to hedge operational risks.But for the corporations,how to hedge,how to use financial derivatives to hedge risks,how to choose hedging strategies,how to avoid the improper operation of financial derivatives in hedging and avoid causing greater losses,and the other similar series of problems are the focus of this essay.Starting from the realistic situation and taking the basic principle of hedging as the theoretical basis,this paper explains the hedging strategy of futures market and the strategy varieties and operation conditions of hedging in option market.Taking YN Rubber Co.,Ltd.as an example,by analyzing the current situation of YN Rubber Co.,Limited and the price risks this company has faced in the real operation,the necessity of enterprise participating in hedging is obtained,and the practical significance of hedging by futures market and option market is presented.At the same time,the problem of hedging strategy after the corporations have entered the futures market is analyzed,for example,the cash position cannot be completely covered,the hedging strategy used is relatively single moded,and the management of futures positions is carried out in an all-inclusive manner.By analyzing the existing hedging strategies,this paper makes a proposition of a hedging strategy for dynamic managed inventory,and a method of basis change strategy.Enterprises can choose the most suitable hedging strategy according to the actual situation in production and operation,so as to maximize the effect of hedging and minimize the price risk faced by enterprises.This paper also proposes a hedging strategy supplemented by futures market and option market to solve the risk of futures hedging in the process of futures hedging.When the enterprise uses hedging,the trend of the actual prices will be opposite to the expected price trend.When the market is wrong,the futures position has a risk exposure.If the position protection is not carried out,the enterprise will face the risk of loss.At this moment,the option product can be used to protect the entire hedging strategy.This paper analyzes in detail how YN company protects its futures when it has the futures positions exposed,and how to enhance the hedging effect through combination strategy,and minimize the price risk to the business operation,and use the combination strategy to gain certain benefits.When enterprises enter the futures and options market to hedge their business risks,they should not only choose proper hedging strategies,but also set up strict internal control systems to prevent major operational errors in futures transactions and cause enterprises to bear huge risks.Enterprises should also set up a professional team with the ability to participate in the futures market.The financial market itself has certain risks,but the rational employing of financial instruments can satisfy the needs of industrial enterprises for large-scale risk management,help in protecting the economic interests of enterprises,make contribution for the development of the real economy,and push forward the healthy development of various industries in the country.