Re: Greenspan' and Derivatives

["Gary Santos" <evs@xxxxxxxxxxxx>]

Still, Stan, if a cattle producer sees that prices are way above normal for
one reason or another. It is his judgement that prices are bound to
decrease. For example, more farms were open because of the high price and
will come on stream with mature cattle in a year or two. The cattle producer
might want to hedge not arbitrage by options and not forward selling. If
prices go against him, he lets his option (insurance) expire. On your
downside example, he should immediately reverse his position and take the
licking.

It's all about speculation on a future event and personal judgment based on
"knowing" the market one is in.


----- Original Message -----
From: "Stan Jonas" <sjonas@xxxxxxxxxxxxx>
To: "Gary Santos" <evs@xxxxxxxxxxxx>
Sent: Sunday, March 16, 2003 12:30 PM
Subject: Re: Greenspan' and Derivatives


Think that through again..
What if the producer of cattle suffers a disease setback.. his cattle and
maybe other's die
but he's short futures which will be rallying as a result of  the "plague"..
hedging as you call it has increased his risk here..
     b) if you hedge you may end up have cashflow risk.. i.e someone has to
fund those margin calls..
    c) If your competitors don't hedge and the prices of the item you're
short on the hedge goes up.. you've lost competitive opportunity cost and
will likely be out of biz...

    d) a myriad other tax and accounting issues..


----- Original Message -----
From: "Gary Santos" <evs@xxxxxxxxxxxx>
To: "Stan Jonas" <sjonas@xxxxxxxxxxxxx>; <pkt@xxxxxxxxxxxxxxxx>
Sent: Saturday, March 15, 2003 10:18 PM
Subject: Re: Greenspan' and Derivatives


> Why hedge.. if you think someting is going to go down.. sell it....get
out..
> Only rationale to "hedge" is that you think you can structure a defacto
> positive expected value arbitrage"...
> ---------------------------------
> I would think hedging is still very much desirable to producers of cattle,
> wheat, gold, etc. when prices are perceived to be high (costs and margins
> are known to the producer) and the physical is still in production and,
> hence, can not be sold.
>
>
>
> ----- Original Message -----
> From: "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>
> To: <pkt@xxxxxxxxxxxxxxxx>
> Sent: Saturday, March 15, 2003 1:16 PM
> Subject: Re: Greenspan' and Derivatives
>
>
> > Arbitrage is not the same as hedging:
> >
> > Arbitrage: Simultaneous purchase and sale of two different contracts (or
> > a combination of cash and futures) to take advantage of perceived
> > mispricing. In a pure arbitrage, mispricing is locked in and a risk-free
> > profit made through trades.
> >
> > Hedge: A sale of futures contracts to offset the ownership or purchase
> > of the underlying cash commodity in order to protect it against adverse
> > price moves; or, conversely, a purchase of futures contracts to offset
> > the sale of the underlying cash commodity, again for protection against
> > adverse price moves.
> >
>
>
>
>