Originally Posted by
pilot64golfer
Yep. Exactly. The hedge is a financial instrument separate from the actual purchase of the good. If the Euro gets stronger, we get more USD for each purchase. If the dollar gets strong (what its doing now) we get less USD from those Europeans when they buy tickets.
The idea of hedging is just to have a stable price of goods and not bet on windfall profits or losses from fuel prices or currency fluctuations.
You can "hedge" either way. Going up or going down. The problem with what the airlines do is they don't do a pure "hedge". They do a "collar". They buy calls to "hedge" against rising fuel prices, but they don't like the paying the cost. To offset the cost, the sell a put. That negates the cost of the collar. It is called a "no-cost" collar. It is true, unless you were wrong about the direction of the price of oil, which is happening now, and happened back in 2010 or so.
When the price goes down, the put you sold goes up in value, and you have to pay up.
UAL being hedged against the Euro didn't mention which way they bet. They could have bought calls, or puts. And sold the opposite.