BofA's Benjamin Bowler: Cost of betting on a stock-market crash is cheapest since 2008. “Since our data began in 2008, it has never cost less to protect against an S&P drawdown in the next 12 months,”
Wut Mean?:
The cost of hedging against a stock market downturn using S&P 500 put options is at its lowest since 2008, says Benjamin Bowler of BofA Global Research.
- They state this low cost is due to a combination of low implied equity volatility, decreased correlation in stock market sectors, and increasing interest rates.
- BofA's team highlights that it's cheaper now to buy S&P 500 puts than in 2017 when the volatility index (VIX) was at its historic low.
- Reminder, a put option allows traders to profit from a decline in the stock or index, and a put spread strategy offsets the cost of one option by selling another.
- Despite the current low cost of bearish options, there seem to be more potential risks in the stock market now than in 2017.
TLDRS:
- BofA's Benjamin Bowler says hedging against a market downturn with S&P 500 put options is the cheapest it's been since 2008.
- This is due to factors like low equity volatility, decreased stock market sector correlation, and rising interest rates.
- Currently, S&P 500 put options are even cheaper than in 2017 when the VIX, a volatility measure, hit an all-time low.
- Despite cheap bearish options, the stock market appears riskier now than in 2017.
