You are right. Hedging with a long term future makes it a very targeted bet on “the real economy, especially travel halts in X months” and this is exactly what you can expect from COVID gone bad. You can see if this is priced in by comparing spring and autumn futures prices: March vs September or I would rather say May vs December. I took a look and the market is in backwardation (longer term is cheaper than short term)! The markets expect everything to be fine, it doesn’t look like COVID disaster is priced in.
I would say that it looks like a pretty good trade. Sell May, buy Dec, hold till May expiry (or till the shock is priced in) and then close both.
You are right. Hedging with a long term future makes it a very targeted bet on “the real economy, especially travel halts in X months” and this is exactly what you can expect from COVID gone bad. You can see if this is priced in by comparing spring and autumn futures prices: March vs September or I would rather say May vs December. I took a look and the market is in backwardation (longer term is cheaper than short term)! The markets expect everything to be fine, it doesn’t look like COVID disaster is priced in.
I would say that it looks like a pretty good trade. Sell May, buy Dec, hold till May expiry (or till the shock is priced in) and then close both.
Wow, it really, really worked out) I want my prestige points)
Good job!