Construct a collar that guarantees the freight cost for the last two quarters of 2018 for a charterer to be between 26,000 and 13,500 $/day.
Freight Options and Bunker Swaps
A) Consider the following option quotes on 23/02/18 for BCI 5TC Options.:
Source: Clarksons – 23/2/18
1. Show, with the help of a diagram, how a shipowner and a charterer can use options to hedge their freight income or cost for the last two quarters of 2018. Determine the
cost of the option hedge in each case. Using the data from the realised spot Baltic
assessments, determine the payoff of those option positions at the expiration of the
contracts.
2. Construct a collar that guarantees the freight cost for the last two quarters of 2018 for a charterer to be between 26,000 and 13,500 $/day. Using the data from the realised spot Baltic assessments in 2018 determine the payoff of those option positions at the expiration of the contracts. With the benefit of hindsight, what would have been the best strategy that the company should have followed?