Caps

A Cap is a paper hedge agreement designed to protect you from rising prices, yet allows you to benefit from falling prices. Also known as "call option".

caps

Two good reasons to use this strategy

  • Rising fuel prices would seriously undermine your business
  • You would like to benefit from falling prices after having fixed your maximum fuel prices

Benefits

  • Protection from price increases
  • Benefit from falling fuel prices
  • Flexibility in physical supply

Disadvantages

  • Premium upfront
  • Potentially some basis risk

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