Capped Swaps

What is a capped swap?

The capped swap is a combination of a bought swap and sold call option. It offers the swap buyer a lower swap level in exchange for limited upside protection.

Here's an example of how it works

To begin, you and Global agree upon

• the monthly volume
• an officieal fuel price index 
• a hedging period (e.g. 3 months)
• the (reduced) Fixed Price
• the Cap Price
   

Month 1:

Monthly average settles at 115 (20 above the Fixed Price, but below Cap level).

Global pays you in full, 20 x volume
 

Month 2:

Monthly average settles at 90 (5 below the Fixed Price).

You pay Global 5 x volume

Month 3:

Monthly average settles at 130 (35 above the Fixed price and 10 above the Cap).

Global pays you up to Cap level. 25 x volume
 

Result:

Protection against increasing prices - from a below-market starting point - up to a level where you do not need the protection anymore.

At the end of each calender month, the settlement amount is based on the difference between the monthly average of the price index and the reduced Fixed Price, up to the point where the Cap level is exceeded.