At present, the global epidemic situation is repeated, the international macro environment is complex, the prices of raw materials rise sharply, the exchange rate fluctuates sharply, the sea freight remains high, it is difficult to find one container, and the adhesive industry is under heavy pressure. In order to cope with the risk of price fluctuation of main raw materials, the listed enterprise Shanghai Yongguan Zhongcheng new material technology (Group) Co., Ltd. (hereinafter referred to as Shanghai Yongguan Adhesive Products Corp.Ltd(603681) ) actively carries out hedging business. In order to manage risks more flexibly, enterprises use options to build a double limit strategy, which not only ensures the hedging effect, but also reduces the occupation of hedging margin, and provides a more flexible and personalized means of hedging for the purchase of raw materials.
build rich hedging strategies
In the past two years, due to the repeated and complicated macro environment, the price of raw materials has fluctuated sharply, resulting in the sharp rise of the international price of raw materials.
The reporter of futures daily learned that most of China’s adhesive enterprises are small and medium-sized enterprises, and some are even workshop type small and micro enterprises. Most of their products are low-end products. They rely on mass production and small profits to obtain lower profit returns. In order to deal with the risk of price fluctuation of main raw materials, enterprises urgently need to carry out hedging business.
As a fine chemical industry, Shanghai Yongguan Adhesive Products Corp.Ltd(603681) in the case of large fluctuations in the price of chemical and other raw materials this year, it actively uses futures and options as hedging business, providing a means of hedging for enterprises to operate and purchase raw materials.
It is understood that Shanghai Yongguan Adhesive Products Corp.Ltd(603681) is the world’s leading supplier of comprehensive adhesive products. Since its establishment in 2002, it has always been committed to realizing the self-reliance of high-level functional adhesive materials. In March 2019, Shanghai Yongguan Adhesive Products Corp.Ltd(603681) was successfully listed on the main board of Shanghai. As a listed company, Shanghai Yongguan Adhesive Products Corp.Ltd(603681) actively participated in the futures market and was initially familiar with the use of futures hedging tools in the early stage. On this basis, the enterprise kept learning and mastering new hedging tools to further upgrade and improve the enterprise risk management system.
Shanghai Yongguan Adhesive Products Corp.Ltd(603681) is a downstream enterprise using PVC. In order to meet the daily business needs, the enterprise needs to purchase PVC and other raw materials. Facing the sharp fluctuation of PVC price, enterprises should carry out cost management for daily procurement. Traditionally, they use futures bulls for hedging, but they are also faced with the situation of margin increase due to the fluctuation of futures price. “To this end, we began to seek the hedging strategy of futures and options portfolio. As a hedging strategy tool, options can build rich strategies and meet the differentiated hedging needs of enterprises.” Shanghai Yongguan Adhesive Products Corp.Ltd(603681) chief financial officer Shi Lishan said that in July 2020, three chemical options such as PVC were listed in Dachang exchange. Since then, Shanghai Yongguan Adhesive Products Corp.Ltd(603681) began to study and explore option tools.
After the release of the “big business risk plan”, Shanghai Yongguan Adhesive Products Corp.Ltd(603681) and Huishang futures decided to participate in option hedging after in-depth communication. “Considering Shanghai Yongguan Adhesive Products Corp.Ltd(603681) worried about the risk of rising material prices at the purchasing end, we designed a plan to buy futures to hedge the risk of rising raw material prices, and took the opportunity to buy put options and sell call options to control the falling risk of futures positions.” Li Hongxia, head of Huishang futures project, said that Shanghai Yongguan Adhesive Products Corp.Ltd(603681) finally chose to use the option double limit strategy to preserve the value of the enterprise.
give full play to the advantages of option double limit hedging
How to carry out option double limit hedging Shanghai Yongguan Adhesive Products Corp.Ltd(603681) the practice is to buy futures hedging first to hedge the risk of rising raw material purchase price, and adopt double limit strategy on options at the same time, that is, buy corresponding put options and sell a call option. “The main purpose of enterprises using the double limit strategy is to pay the premium to buy put options to insure futures bulls, and use reasonable put trading to appropriately reduce the expenditure of hedging premium.” Li Hongxia said that when the market fluctuates violently, under this strategy, enterprises can achieve profits and losses within a limited range and controllable risks.
It is reported that the double limit strategy has the characteristics of flexible strategy, limited loss and high efficiency of capital use. When the price of PVC goes down, the spot purchase price falls and option hedging can benefit; When the price rises sharply, this strategy can hedge the loss caused by the rise of spot price, and the option double limit strategy can also reduce the hedging cost.
From the specific operation point of view, Shanghai Yongguan Adhesive Products Corp.Ltd(603681) plans to hedge the purchase of 300 tons of raw materials. On May 27, 2021, it will buy 60 hands (i.e. 300 tons) of v2109 contract to open the warehouse. The opening price is about 8553 yuan / ton and the margin is 275800 yuan. The enterprise synchronously constructed the option double limit strategy, bought 60 v2109-p-8400 put options, and the unit price of the premium was 282.5 yuan / ton; When selling the call option v2109-c-9300, the unit price of the premium is 126.83 yuan / ton.
On August 6, Shanghai Yongguan Adhesive Products Corp.Ltd(603681) closed the long positions of futures at the price of 9105 yuan / ton, and the return on the futures end was 165500 yuan; On the option side, both the put and put options held are expired and not exercised, and the cost of portfolio premium is (282.5-126.83) × 300 = 46700 yuan; On the spot side, the spot purchase price of enterprises was 9210 yuan / ton, 60 yuan / ton higher than the spot purchase price on May 27, and the purchase price of 300 tons increased by 18000 yuan. The cash, futures and futures options are calculated together, and the risk hedging income is 100800 yuan. On the whole, the futures end income hedges the risk of rising spot prices, while the option double limit strategy not only protects the futures position, but also reduces the option cost. If only one leg is used to buy put options, the premium cost of option hedging will increase by 38000 yuan.
It is worth noting that the double limit strategy of put and call not only reduces the cost of option premium for enterprises, but also reasonably saves the occupation of put margin with the help of the preferential policies of futures option portfolio trading of the exchange. It is understood that in order to encourage industrial enterprises to carry out portfolio trading strategies, Dachang exchange has provided a variety of margin preferential policies for portfolio trading strategies such as futures lock-in, cross option, buy or sell vertical spread and so on. The purchase of futures and the sale of call options in this project meet the margin preferential conditions of Dachang exchange for the put option futures portfolio strategy. “In this strategy, the exchange implements preferential margin for this. Enterprises only need to pay the margin of futures positions without paying an additional margin of option sellers, which significantly improves the capital use efficiency of enterprises.” Li Hongxia said.
expand the new path of Enterprise Risk Management
This project makes Li Hongxia feel that it is normal for enterprises to participate in hedging. How to guide more enterprises to participate in futures and option markets is the top priority of future work. “To achieve this goal, we not only need to continuously improve the professional quality and service ability of the team, develop a variety of businesses with higher added value, provide targeted solutions through multiple channels, and expand new channels for listed enterprises to participate in the option market.
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In her opinion, despite the increasing diversification of risk management tools, there is still a certain distance between the practical application of entity enterprises and the ideal effect. Among them, there is still a shortage of hedging related talents in enterprises. Relying on the decision-making and judgment of leaders alone is easy to lead to mistakes in hedging decision-making. The project of “big business risk plan” makes enterprises that do not have access to expired rights more willing to try to participate in option trading, which has promoted enterprises to understand and use options.
\u3000\u3000 “This operation has made a new ‘breakthrough’ in the risk management business for our listed companies. We have initially tried that options have a nonlinear profit and loss structure, which retains the space for income growth in hedging risks. Through practice, we realize that the buyer of options does not pay the margin and only needs to pay a small amount of premium, which can improve the capital utilization rate of traders. In addition, options have the characteristics of flexible strategy selection At the same time, enterprises can build hedging schemes with different effects according to cost control demand and trade flow, combined with the judgment of the market. ” Shi Lishan said.
In Shi Lishan’s view, the “big business enterprise style plan” not only publicizes floor options or other derivatives to enterprises, but also teaches enterprises how to use these tools. “Option is a good tool, but the technical threshold is high. Enterprises need to practice many times before they can really master, fully understand the practical skills of option, master the use methods of option, and help enterprises improve their ability to resist market risks.”
