Fearless Stock Bulls Start Hedging as Fed Policy Pivot Stalls
Index prompted long-complacent traders to look at the hedges they’ve ignored for months.
The demand for broad market insurance plunged to multi-year lows in the first quarter as US stocks posted a series of fresh highs despite growing geopolitical tensions and uncertainty over interest rates. This week, that changed as the desire to protect against a downturn increased by a number of measures.
“People are starting to recognize that we’ve skated through these first three months of the year — all in the face of interest rates going up, in the face of pushing out the probabilities of cuts,” said Joe Mazzola, director of trading and education at Charles Schwab & Co. “Something’s got to give at some point.”
The Cboe Volatility Index, known as the VIX, closed at its highest level since November on Thursday, before dipping Friday as US stocks climbed. The index — a measure of the 30-day implied volatility of the S&P 500 based on out-of-the-money options prices — still held above its 200-day moving average.
Since late March, investors have been slowly tacking on hedges, pushing the cost of bearish three-month put options to the biggest premium over bullish contracts since mid-January. Those positions added onto insurance that’s gotten more attention this year — tail-risk hedges that protect against a major crash, rather than a minor correction.
Some investors are using spreads, which offer less protection against a downturn but cost much less than outright contracts. Susquehanna International Group called out recent
