Help a fool out: how can one hedge or lock interest rates?
I have this situation and I'm trying to wrap my brain around it. I am elligible for a line of credit (not a loan, no amortization is requisite) via the institution that holds much of my investments (stocks etc.) at libor plus.
So basically the one month libor rate + a little bit more would be the interest rate. Libor right now is basically zero and the resulting interest rate is ubelievably attractive. And I would like to take this line of credit and use it for several purposes... It will take time to deploy the funds, but i'm willing to pay interest on the whole amount to lock in current rates... if locking in those rates is possible.
But I don't want my interest rate skyrocket if libor moves from basically zero (0.29% right now) to 5% or something.
So I would like to hedge interest rates, but I have absolutely no idea how to do it.
Can I go long on Libor? Or libor futures or something? So say I borrow 1000 bucks under my line of credit, and say I'dthen have to pay 20=30 bucks a year in interest on it. But if libor goes to 10% then I'm paying 12% and happy becomes sad. But say I was long libor with 100 bucks. At 0.29%. And it went to 10% would I then have 3000 bucks?
Can I buy some kind of call for interest rates or libor?
Can I short treasuries as a hedge?