Derivatives to hegde against unemployment and a recession
- Thread starter Daal
- Start date
why would a company have to hedge against unemployment?
unemployment is one of the biggest fears of an employee .. not
employer.
if there is recession than there should be lots of workforce available due to layoffs by other companies. no need to hedge there ...
as far as hedging against recession .... depends how much risk
the company wants to take ... it could buy puts, sell calls or
do a combination of both. i personally don't like the idea
of selling calls, too little premium for the risk. the reason
that puts have higher premiums than calls is that puts are
heavily bought by money managers to insure their portfolio
against a stock market drop (referring to S&P500 puts, traded
on CME). so the company could buy puts month after month ... hopefully they won't expire all worthless.
companies should hedge purchases or sales specific to its business on a regular basis, recession or not
unemployment is one of the biggest fears of an employee .. not
employer.
if there is recession than there should be lots of workforce available due to layoffs by other companies. no need to hedge there ...
as far as hedging against recession .... depends how much risk
the company wants to take ... it could buy puts, sell calls or
do a combination of both. i personally don't like the idea
of selling calls, too little premium for the risk. the reason
that puts have higher premiums than calls is that puts are
heavily bought by money managers to insure their portfolio
against a stock market drop (referring to S&P500 puts, traded
on CME). so the company could buy puts month after month ... hopefully they won't expire all worthless.
companies should hedge purchases or sales specific to its business on a regular basis, recession or not
hedging with the futures contract is the riskiest way ... not too much room for error. i hope that company has a trading desk who can watch the treasury futures around the clock from Mon through Fri
you seem to know the answers to your own questions ....
Until a few months ago there were economic data derivatives auctioned @ CME.. but I think they dismissed to quote them.