Battery Metal Risk Management

1. The Inputs

• I am a...: Choose 'Consumer' if you need to *buy* the metal (like an OEM) and fear rising prices. Choose 'Producer' if you *sell* the metal (like a miner) and fear falling prices.
• Physical Position: This is your real-world exposure. 'Volume' is how much you need to buy or sell. 'Budgeted Price' is your baseline for calculating profit or loss.
• Hedging Strategy: Select the derivative strategy you want to model.

2. The Chart Lines

• Unhedged P/L (Dashed Line): This is your "do nothing" scenario. As a Consumer, your P/L falls as market prices rise (your costs go up). As a Producer, your P/L rises as market prices rise (your revenue goes up).
• Hedged P/L (Solid Line): This is your *net* financial position, combining your physical P/L with the P/L from your chosen hedge. This line shows you the outcome of your strategy.

3. Strategy Payoffs Explained

Futures Contract (Price Lock):

This creates a flat, horizontal line. You have locked in a price, removing all uncertainty. You are protected from negative price moves but give up all potential gains from favorable moves.

Buy Option (Price Protection):

A Consumer buys a Call (ceiling). A Producer buys a Put (floor). This provides "one-way" protection. You are protected from bad prices but can still benefit from good prices. This protection costs a 'Premium', which is a guaranteed upfront cost.

Costless Collar (Price Range):

This strategy involves buying one option and selling another to fund it. You create a "tunnel" or "range" for your price. You are protected from prices outside this range, but you also give up gains beyond it. It's often "costless" because the premium you pay for the protective option is offset by the premium you receive for selling the other.