Hedging Fixed Income

[CALSIG2000]

is there any way to hedge against a falling preferred stock prices for the purpose of protecting against a margin call? standard margin is of course at 50%. Would it be better to hedge at the call level or at a level higher than that?

 

[arabianights]

Don't understand the question; can you expand?

 

[grantx]

Cal,

Excuse my ignorance but are there options for preferred stocks?

If you have to meet a margin call the position has gone seriously south and you should think of closing to avoid further loss (although you should have closed earlier - we're all wise after the event).

If you hedged at this point you will effectively neutralise the position, and will then have to make a decision of when to lift the hedge to resume exposure (if you were wrong about direction initially, are you confident re timing again?)

Margin calls in the context of falling prices indicates this a short put position. In other words your exposed on two fronts - falling price on underlying, falling price on short option. Maybe short puts are best avoided.

Grant.

 

[Rhody Trader]

is there any way to hedge against a falling preferred stock prices for the purpose of protecting against a margin call? standard margin is of course at 50%. Would it be better to hedge at the call level or at a level higher than that?

The question that has to be answered before you can create a hedge rather than a stop loss (which is really what a long put would be) is what is the risk? What's the cause for the dropping preferred price? Is it declining credit worthiness? If so, that sounds like a corporate bond hedge. Is it poor earnings performance? Then that sounds like an equity hedge.