Derivatives Hedging: SASOL (Pty) Ltd. as an Example

Abstract

The empirical study analyzes derivative hedging strategies that can be implemented for an investor who has been holding SASOL (Pty) Ltd.’s stocks before February 1999, in relation to that of JSE Top 40 Index. Moreover, as the relationship between SASOL’s stock and the JSE Top 40 Index changes, this empirical report recommends a different derivative hedging strategy based on calculations and the relationship of the two variables-SASOL (Pty) Ltd. and the JSE Top 40 Index. A correct execution of a derivative hedging strategy does not mean that no losses will be incurred, but that ideally, the overall net position of the derivative hedging strategy should be positive. Each investment portfolio needs a tailor-made derivative strategy that fits it well. Furthermore, for hedging strategy to work well, it needs proper monitoring by a skilled professional.