Goldman Sachs Suggests Positioning For Downside in Brazil

Goldman Sachs is out with a research note this morning, where it suggests that traders position for downside and/or hedge to the downside on the Bovespa.

Goldman analysts noted that Ibovespa outperformance is unlikely until the market passes several “signposts” indicating less risk from inflation and higher rates. In their view, Ibovespa volatility near all time lows is inconsistent with the level of uncertainty surrounding Brazil's inflation outlook.

The GS analyst suggest two hedging strategies, including:

• Buying the June 2011 95%/85% put spread; selling the 109.5% call to fund
• Buying the June 2011 95% put; selling the 107.1% call to fully fund