If you have mortgages tied to the 1y LIBOR that reset once per year, would you be best served to use a strip of 4 eurodollar futures (white/red packs), a series of put options on eurodollar futures, or caplets? The goal is to hedge your exposure to a rising 1y LIBOR. Any input would be greatly appreciated.
I'd go with the Eurodollars, as they offer the best liquidity... As to whether to choose options or do outright, that's something you have to decide for yourself (it's a trade-off between transaction costs and a smoother payout)
1) If this is for your own mortgage, convert to a fixed rate. 2) If you are a dealer, tell the mortgage bankers to tell their customers to convert all the adustable mortgages to fixed rate.
Do you have a couple of lawyers on your payroll to deal with ISDA/CSA? You got facilities for posting collateral?