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Comment by yskchu | Hacker News Reader

How interesting, I was just reading that same article yesterday!

The article is from 2017, but Mexico has been doing the same trades still every year - for example:

https://www.worldoil.com/news/2020/1/3/mexico-hedges-2020-cr...

This is from this January 2020 - they hedged at $49 per barrel... just before the coronavirus demand shock and oil price fall... another great Hacienda hedge.

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Pardon my ignorance but if they bought puts at $49, with the current price they must have made a killing right?

Yes an absolute killing, similar to the one mentioned in the article for back in 2008 - may not be as much as back then but still a lot.

This is a case where a hedge plays out well, and the main motive for their play is stability for their government spending. Good for the citizens of Mexico

Not a killing. Only 25% of Mexico's oil production was hedged. So we're still losing ton of money on the other 75%, since oil is one of the main revenues of the Mexican goverment.

It's just insurance so when the prices crash the country doesn't go with it. Since no insurance company in the world can insure even a small govt, the only way to go for it is with financial instruments.

We rather lose a bit of money during the good times and not get wiped during the bad times.

It also seems Hacienda is quite decent at reading the markets from the article, I didn't know as much.

If you exclusively consider the value of the puts, then yes they made a killing. But Mexico didn't use the puts to take a huge directional speculative bet - it used them to hedge oil price risk, so the profits from this trade are structured to offset losses elsewhere. For example, sustained low oil prices will could put companies out of business or even make Mexican oil uncompetitive on a global scale.

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