Derivatives to hegde against unemployment and a recession

Discussion in 'Financial Futures' started by Daal, Nov 7, 2007.

  1. Daal


    how does an avarege company can hedge against a possible recession and unemployment
  2. why would a company have to hedge against unemployment?
    unemployment is one of the biggest fears of an employee .. not
    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
  3. Treasury futures.
  4. 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 :D
  5. credit default swaps but joe six pack can't buy them.
  6. Daal


    a mortgage lender with a big portfolio will earn less if the unemployment goes up
  7. you seem to know the answers to your own questions ....
  8. Until a few months ago there were economic data derivatives auctioned @ CME.. but I think they dismissed to quote them.