Group 1 - The core concept of options hedging is to use the characteristics of options to offset potential losses in spot or futures positions, thereby achieving risk management and profit protection [6][4] - Options hedging involves establishing an options position that generates returns to compensate for losses in the underlying spot or futures, aiming to lock in or reduce price risk [6][4] - The principle of futures hedging is based on the high correlation between the prices of the same underlying asset in the spot, futures, and options markets, where futures prices generally move in the same direction as spot prices [3][4] Group 2 - Protective hedging can be classified into two types based on the intent of the hedger: purchasing call options for consumers to prevent price increases, and purchasing put options for producers to prevent price decreases [7][6] - The protective hedging strategy allows for locking in losses while retaining the potential for profit, functioning as an insurance strategy against adverse price movements [6][7] - The number of options contracts for hedging should typically match the size of the underlying spot or futures position, but adjustments can be made based on market volatility assessments for better hedging effectiveness [8][7]

Core Viewpoint - The article analyzes the strategies used by upstream companies in the sugar industry to hedge against price volatility through options, focusing on the effectiveness of different strategies during the 2023-2024 sugar market fluctuations [1][18]. Strategy Comparison - Sugar options have nonlinear profit and loss characteristics, providing companies with more strategies for risk management and enhancing operational stability [2]. - In 2023, the average daily trading volume of sugar options was 180,000 contracts, with an open interest of 420,000 contracts, indicating sufficient market size for hedging needs [2]. - Sugar prices experienced significant fluctuations, with a low of 5,500 yuan/ton and a high of 7,202 yuan/ton, prompting upstream companies to effectively utilize options to enhance profits [2]. Strategy Analysis - The article compares two main options strategies: covered call writing and protective put buying, focusing on their effectiveness in different market conditions [3]. - Covered call writing allows investors to enhance returns while holding long positions in sugar by selling corresponding call options, which can lower holding costs [4][6]. - Protective put buying serves as insurance against price declines, allowing companies to hedge against losses while still benefiting from potential price increases [9][10]. Experimental Setup and Parameters - The study uses market data from January 2023 to October 2024, during which sugar prices fluctuated from 5,500 yuan/ton to 7,200 yuan/ton, providing a complete bull-bear market cycle for analysis [12]. - The volatility index (VIX) for sugar showed significant fluctuations, with a minimum of 8 and a maximum of 24, indicating a representative market dynamic for strategy comparison [12]. Results Analysis - The performance of four strategies was evaluated, with the protective put strategy ranking first due to its effective risk management in both rising and falling markets [14]. - The covered call writing strategy performed poorly in rising markets, highlighting the importance of volatility and market conditions in strategy selection [15][16]. Conclusion - The article concludes that upstream companies in the sugar industry can effectively use options for hedging against price volatility, emphasizing the importance of market conditions and volatility in strategy selection [18].