"Long" Strategies

What Does Long (or Long Position) Mean?

The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value.

How does this apply to an IFEX ELF?

A Protection Buyer fears that future prices may rise so buys an appropriate ELF contract today locking in the current price. This might be used to:

• Hedge against a rise in the price of a future renewal (see description below);
  
  
• Exploit mispricing compared to the technical rate;
  
  
• Exploit an anticipated price rise in the cost of ILWs;
  
  
• Hedge against any natural catastrophe in 2010 or 2011.

Hedging Renewals - Long.

IFEX lists ELF contracts for the current calendar year and the subsequent calendar year making it possible to hedge US Wind protection renewal prices.

A Protection Buyer can lock in the current price by buying the IFEX ELF 2011 contract.

Should a hard market develop and prices rise, the profits made by receipt of Variation Margin  on its position would offset the higher premiums it might need to pay on its 2011 renewals.

This "long renewal"  hedge will allow Protection Buyers to manage their portfolio through the up phase of a price cycle.