A.I.M. Users Bulletin Board

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Hi Don,

It looks like an expensive hedge to me. Actually, one of the few contrarian plays I see today, is bonds. I can't stand the risk of a 30 year treasury bond yielding less than 5%, with the expectation that interest rates (overnight) will be raised soon. Note that bonds have not fallen from recent rate hikes. I'm actually thinking of investing in EAD on any correction as a purely contrarian play. My thinking is that much of the public has already gotten out of EAD and bond investments. Even if bond rates were to rise, bond values might not fall so much that the dividend yield would still give you a modest profit.

The reason I say it's an expensive hedge is the size of the fund expenses, the premium costs of the underlying futures and options contracts, and the opportunity costs of parking your money in the fund.

EAD actually sells for a very small premium, so it's not really a contrarian play. But if prices do fall, and it enters a historically low discount, I'll probably add it to my portfolio.