Hedging The 4 Most Active Mid Caps
By David Pinsen:6 Mid Caps With More Than 10 Million Shares Traded: On Wednesday, when the Dow Jones U.S. Mid-Cap Index dropped fractionally to close at 525.65, there were four mid cap stocks that each had trading volumes of over 35 million shares. The trading volumes on all six stocks ranged from approximately 36 million, for Research In Motion, Ltd. (RIMM) to approximately 44 million, for SandRidge Energy, Inc (SD).Of these four stocks, three in particular were extremely expensive to hedge. Recall that we have observed examples of high optimal hedging costs presaging poor performance. The table below shows the costs, as of Wednesday's close, of hedging Research In Motion, SandRidge Energy, and the other two highest-volume mid caps against greater-than-21% declines over the next several months, using optimal puts.
For comparison purposes, I've added the iShares S&P MidCap 400 Index ETF (IJH) and the PowerShares QQQ Trust ETF (QQQ)Complete Story »