What Is the Concept of ‘Negative Carry’ in a Hedging Strategy?

'Negative carry' in a hedging strategy occurs when the cost of maintaining the hedge (e.g. the premium paid for a Protective Put or the funding rate on a short futures position) is greater than the income generated or the yield earned on the underlying asset. This results in a net cost for holding the position over time.

A strategy with negative carry will lose money if the underlying asset's price remains flat, making it a drag on the portfolio's performance.