Hi, I do know how to hedge by using the different methods, but I am slightly confused how to hedge with options on CME. I know that I should buy a put option on mexican pesos, but I am not sure how I can decide the appropriate contract size, and how many options I should buy, as well as what price you buy at, on the CME options MXN/USD page.

Question:

A US company will be selling a large machine to a company in Mexico exactly one year from now in exchange for a payment of 60,000,000 Mexican Pesos. You are an analyst who is considering different ways of hedging this risk exposure.

Hedge with Options:

Use the quote from the CME group at the options tab on the futures page to select a strike price and obtain a price for an appropriate option. Draw a diagram that shows the (i) unhedged position, (ii) the value of the hedge, and (iii) the net position in US dollars that will be received if the exchange rate changes by -20%, -15%, -10%, -5%, 0, 5%, 10%, 15%, 20%