As discussed in Hedging Rules, rules (i.e. a risk management policy) should be established before any hedging takes place. The rules get decision-makers (and second-guessers among them) on the same page by specifying what to hedge, how far forward to hedge, approved hedging tools and strategies, authorizations, when hedges may be closed, reporting requirements, etc.
Getting to the rules requires a few steps. One of the most important steps is to identify and prioritize tools to limit or eliminate cost and margin risks. For resins hedgers, the tools provided by the CME are a must-have. In the words of one smart resins hedger, "We value price certainty, and hedging is the only way to get it. Our greatest single exposure is resin and I've been tasked since day one to come up with a hedging method. Initially, swaps were the only tool, but they were not transparent and always carried too much extrinsic value to be attractive. The new CME tools are the future ..."...