Cost of Hedging Weekly Update 10-17

by Jay Pestrichelli on October 17th, 2012

With a 2% bounce back in the market these past 5 trading says, we’ve seen a drop in the cost of hedging.  Mid-term costs have dropped below the 1.25 bps per day level and short-term below the 1.00 bps per day level.
If the last year has been any guide, we feel these are good levels put on your protection. Here’s a chart of the last 30 days and as always, you can see the historical data on our Resources Page.
Late last week we outlined how the S&P was at a pivotal point as it tested the bottom of its upward channel. A failure to bounce off the 50-day moving average could spell trouble, but if it did hold true to resistance and recover, expect the upward trend to continue. 

The market did bounce higher and has resulted in a lower cost of hedging. With the upcoming expiration on Friday consider taking advantage of these lower costs. While we’ve said this message before, it still holds and quite frankly at these higher levels it’s not a bad idea to keep moving up your hedge levels. 

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