{"id":40450,"date":"2023-07-25T20:56:54","date_gmt":"2023-07-26T00:56:54","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/cost-of-betting-on-a-stock-market-crash-is-cheapest-since-2008-says-bofa\/"},"modified":"2023-07-25T20:56:56","modified_gmt":"2023-07-26T00:56:56","slug":"cost-of-betting-on-a-stock-market-crash-is-cheapest-since-2008-says-bofa","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=40450","title":{"rendered":"Cost of betting on a stock-market crash is cheapest since 2008, says BofA"},"content":{"rendered":"
\n

An earlier version of this story said the cost of betting against a stock-market crash was at the cheapest since 2008. It has been corrected. <\/p>\n

Traders who expect the stock market to crash sometime during the next year are in luck: The cost of betting on a blowup hasn\u2019t been this cheap since at least 2008, according to a team of analysts at BofA Global Research.<\/p>\n

\n

\u201cSince our data began in 2008, it has never cost less to protect against an S&P drawdown in the next 12 months,\u201d according to a team led by Benjamin Bowler, BofA\u2019s top global equity-derivatives strategist.<\/p>\n

Relatively low equity volatility coupled with rising interest rates \u2014 the Federal Reserve is widely expected to deliver another 25-basis-point interest-rate hike on Wednesday \u2014 and low correlation among different corners of the stock market has created a \u201chistoric entry point\u201d for hedges, the team said. <\/p>\n

According to the team, the cost of buying S&P 500 puts and put spreads expiring in 12 months is even lower today than it was in 2017, when the Cboe Volatility Index
\n VIX,
\n -0.36%<\/bg-quote>,<\/span>
\n otherwise known as the \u201cVix\u201d or Wall Street\u2019s \u201cfear gauge,\u201d touched its all-time low below 9. By comparison, the gauge finished Tuesday at 13.86. <\/p>\n

<\/p>\n
<\/p>\n<\/figure><\/div>\n

A put is an option contract that could pay off if the underlying stock or index were to fall by a certain amount over a given period. The level at which an option goes \u201cin the money\u201d is called the \u201cstrike price.\u201d Traders can typically exercise or sell \u201cin the money\u201d options for a profit, so long the cost of purchasing the option has also been offset. Equity options give traders the right, but not the obligation, to buy or sell.<\/p>\n

In options trading, a \u201cspread\u201d is a type of strategy that involves selling one option contract to offset the cost of buying another. <\/p>\n

The team recommended buying puts that would pay off if the S&P 500
\n SPX,
\n +0.28%<\/bg-quote>
\n were to fall by 5% over the coming year. But for investors who are looking to take a bigger swing, they also recommended a put spread that would involve selling an even further out-of-the money S&P 500 put to offset the cost of buying the 5% out-of-the money put mentioned above. <\/p>\n

Upfront premiums paid on such a trade is in the low single-digits, meaning the cost of protection is a small fraction of the index\u2019s price in the spot market. <\/p>\n

<\/p>\n
<\/p>\n<\/figure><\/div>\n

If the S&P 500 were to falter, the put spread recommended by the team could offer a max payout of more than 8-to-1.<\/p>\n

In a sense, the cost of bearish options on the S&P 500 has gotten so low, it almost doesn\u2019t make sense. There appear to be far more potential stock-market landmines nowadays than there were back in 2017. <\/p>\n

U.S. stocks finished higher on Tuesday with the S&P 500 rising 0.3% to 4,567.46. Meanwhile, the Nasdaq Composite
\n COMP,
\n +0.61%<\/bg-quote>
\n rose by 0.6% to 14,114.56 while the Dow Jones Industrial Average
\n DJIA,
\n +0.08%<\/bg-quote>
\n rose by 26.83 points, or 0.1%, to 35,438.07, clinching its longest winning streak in more than six years. <\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

An earlier version of this story said the cost of betting against a stock-market crash was at the cheapest since 2008. It has been corrected. Traders who expect the stock market to crash sometime during the next year are in luck: The cost of betting on a blowup hasn\u2019t been this cheap since at least […]<\/p>\n","protected":false},"author":1,"featured_media":40451,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-40450","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nCost of betting on a stock-market crash is cheapest since 2008, says BofA | iFintechWorld<\/title>\n<meta name=\"description\" content=\"An earlier version of this story said the cost of betting against a stock-market crash was at the cheapest since 2008. It has been corrected. 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