Cost of Hedging Weekly Update 2-24-14

by Jay Pestrichelli on February 24th, 2014

The past two weeks have seen a steady rise and leveling in the market causing the cost of hedging to return to end of 2013 levels. As of the Feb 21st the short-term daily cost was flat at 0.80 basis points per day and the mid-term cost out to September 2014 dropped to 0.97 basis points per day.  
See data for the past 29months on our Resources Page

There isn’t a whole lot to say about the past two weeks except that we’re back at low levels and we think it is a good time to hedge if you’re putting new money to work. Last week, we introduced the Retirement strategy and talked about finding a level where the cost of hedging was very affordable. That still exists and we think over the long-term using options to create synthetic exposure and limiting losses is a smart way to go. Especially considering the low cost to put on protection. If you didn’t get a chance to read it, take a look at the post from 2/21/14.
There are plenty of bulls out there these days and a fair amount of flat-year pontificators. From our perspective, an up year is a good thing, but a sideways year isn’t going to cost you very much to create protection. After a year like 2014, fear of a pullback will always be in the forefront of all investor thoughts, but hedging is there to keep us disciplined. So follow rule #1 and Hedge Every Investment and you’ll sleep better at night knowing you’ve protected yourself and stayed true to a long term plan.

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