Cost of Hedging Weekly Update 11-11-13

by Jay Pestrichelli on November 11th, 2013

Even after a little bit of a scare last week with a dramatic one day drop Thursday, the cost of hedging remains low. As of the close of business on the 8th  the short-term daily cost was 0.72 basis points per day and the mid-term cost out to June 2014 was 0.99 basis points per day.  
See data for the past 28 months on our Resources Page

After touching a new all-time low on October 28th, the cost of hedging brushed off the scare of last week’s 1.5% one-day sell off. It was pretty clear that the options market didn’t take the threat of European weakness seriously despite their central bank lower rates. If anything, the market realized that any financial institution following plan laid out by the US Fed is one of stock price inflation and accommodating government support.  
Looks like going forward, the market is still in “No trouble until May” mode and still buying this market on any dip at all. However, if last Thursday was any indication, any selling with volume could be notable.  So we keep hedging and be glad that it cheaper than most years.

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