Wednesday, December 19, 2012

Traders Hedge Bets as Budget Talks Turn to Bluster




U.S. markets in the last few weeks have conveyed a strong sense of optimism over Washington's budget battle - perhaps a bit too much, at least acccording to CNBC.

The benchmark S&P 500 indexrecently capped off its best two-day run in a month and the euro reached an 8-1/2-month peak against the dollar, largely on expectations that an agreement to avoid the "fiscal cliff" - $600 billion in automatic spending cuts and tax hikes set for early next year - is nearly at hand.

But at the risk of sounding like Ebenezer Scrooge, some investors fear a sudden run of bad news could snuff out the pre-holiday cheer and send stocks down. As a result, they are wading into the options market to hedge their bets and protect their profits….

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