09 January 2013

EDZ3 : Cheap Insurance

  • 3 months LIBOR = 0.305%
  • EDZ3 = 99.63 ie 0.37%
  • Giving up 6.5 bp for 11 months of time decay ie cost of about half a bp per month =miniscule.
  • Risk : LIBOR collapse. Unlikely, since we are at ZIRP already. 
  • If anything, it is more likely we get a move in the other direction (=bonus) from an unforeseen "accident" leading to credit spreads widening. But even so, unlikely to be a serious blow-out given that the banks' balance sheets have been repaired now.
  • Ideally, shorting should be done on the '14 contracts but my Saxo charts contain bad data points so I have used EDZ3 instead here.
  • Technicals : This kind of chart, where nothing has gone on for the longest time and the candles get smaller and smaller at the same price level, is always worth following.  Watch out for a sudden spike to break the monotony. Always a good sign of a sea change.
  • Trade : Nothing yet. If I find myself running a large Risk On position based on QE infinity, then I might consider buying some cheap insurance -EDH4. That's not the case now.

1 comment:

Taichiseal said...

-EDH4 @ 99.62