Investors Seek Downside Protection as Market Uncertainty Spurs Demand for Hedging
• Investors are seeking more protection from a market downturn due to recent stock market volatility. Demand has increased for broad market hedges and insurance against crashes.
• The VIX volatility index rose to its highest level since November before dipping Friday. Put option premiums have also increased, signaling rising demand for downside protection.
• Investors are using cheaper spread trades rather than outright put options to hedge their portfolios. Both institutional and retail investors want protection.
• There are many uncertainties causing investor angst, including geopolitics, upcoming elections, earnings reports, and especially Fed policy and interest rates.
• Options positioning shows continued demand for megacaps and growth over riskier value stocks. Investors expect a soft landing but are still seeking protection in case of bumps.