Hedging against rising nickel price

Discussion in 'Options' started by dim4x4, May 5, 2011.

  1. dim4x4


    Hi everyone!

    I'm new here, I'm not a trader and actually not planning to be one, but maybe you can give me some advice re my situation.

    It's very simple. There is a steel plant just outside of Moscow which needs to purchase roughly 300 mt of nickel every 3 months.

    We’d like to hedge now against the price for nickel going up in 3, 6, 9 and 12 months. In my opinion, the easiest way is to buy specific call options. The task is to do it the cheapest way possible. So my questions are:

    1. Is it cheaper to talk to investment banks or to do it via online trading account?
    2. If it's an online broker, which one is the best (read least expensive) for our needs?
    - we won't be doing any trading, except for infrequent purchases and exercises of options
    - we can open account as an individual or company, domestic or foreign - whichever is the easiest

    Thank you very much for your help!
  2. What Nickel instrument are you planning to use for your hedging? What's the size you're planning to do this in? What sort of entity are you/do you represent? All these are questions that need answering before you can meaningfully address your query.
  3. I believe the best way is to buy Nickel futures, options might be too expensive.
  4. dim4x4


    The obvious instrument is buying a call option. Also maybe adding short call to do a spread. Option vs. futures contract is a question. We'd like to have an option not to buy if the price goes down.

    As far as size. We need 300 metric tonnes of nickel every 3 months. So from $400K to $700K per transaction

    The entity, as I said can be either an individual or a company, based in the most suitable jurisdiction. We'll set up a trader basically.


    ps. Also, if there are profits, where would be the best tax treatment?