Parachute strategy: hedging proposal for the Mexican stock market in the face the arrival of omicron

Abstract

The objective of the research is to propose a better volatility hedging strategy with European financial options on the main index of the Mexican market (S&P BMV/IPC) that provides greater protection compared to traditional strategies in the face of the arrival of the omicron variant in Mexico. A short-term intertemporal analysis is performed considering monthly forecasts in the price of the S&P BMV/IPC through the SARIMAX econometric model for various traditional volatility strategies (straddle, strangle and butterfly) and for the proposed parachute strategy. The results show that the parachute strategy is empirically the best, and a viable alternative to face the future impacts caused by the omicron variant. As a limitation, commission costs are not considered in financial option contracts. The work is original because it glimpses the first discoveries of the o micron variant in the Mexican market. It is concluded that the parachute strategy is better compared to the traditional ones and provides greater protection against drastic changes in the future price of the S&P BMV/IPC. (English) [ FROM AUTHOR] El objetivo de la investigación es proponer una mejor estrategia de cobertura de la volatilidad con opciones financieras europeas sobre el principal índice del mercado mexicano (S&P BMV/IPC) que brinde una mayor protección respecto a las estrategias tradicionales ante la llegada de la variante ómicron a México. Se realiza un análisis inter temporal de corto plazo considerando pronósticos mensuales en el precio del S&P BMV/IPC a través del modelo econométrico SARIMAX para diversas estrategias de volatilidad tradicionales (cono corto, cuna corta y mariposa) y para la estrategia paracaídas propuesta. Los resultados muestran que la estrategia paracaídas empíricamente es la mejor, y una alternativa viable para hacer frente a los impactos futuros ocasionados por la variante ómicron. Como limitación no se consideran costos de comisión en los contratos de opciones financieras. El trabajo es original porque vislumbra los primeros hallazgos de la variante ómicron en el mercado mexicano. Se concluye que la estrategia paracaídas es mejor respecto a las tradicionales y brinda una mayor protección ante cambios drásticos en el precio futuro del S&P BMV/IPC. (Spanish) [ FROM AUTHOR] Copyright of Análisis Económico is the property of Universidad Autonoma Metropolitana, Unidad Azcapotzalco and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full . (Copyright applies to all s.)