28 Jul 2023

It has never been cheaper to hedge against a market crash

According to Bank of America's derivatives strategists, it has never cost less to protect against an #sp500 crash drawdown in the next 12 months. Why is the cost of longer-dated S&P protection at record lows today? The most common explanations are a mix of fundamentals (e.g. a recession, if it materializes, will be short-lived and shallow; or, realized correlation is too low to warrant higher implied correlation) and vol technicals (e.g. the supply of vega on US underlyings for yield remains robust; or, due to the rise of short-dated option selling, the next shock will likely be a “gamma event” in which systemic tenors of risk don’t react strongly). Source: BofA, www.zerohedge.com

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