Growing Demand for Market Crash Protection Despite Post-Election Rally

Demand for options protection against an equity market crash is rising, even as a post-election rally takes U.S. stocks to record highs.

But several barometers gauging uptake for protection against extreme market swings - such as the Nations TailDex Index and Cboe Skew - are picking up. Though U.S. stocks largely shrugged off the comments, Trump’s broadside evoked flashbacks to the trade-fueled market swings that took place during his first term, bolstering the case for portfolio hedging.

The Nations TailDex Index, an options-based index that measures the cost of hedging against an outsized move in the SPDR S&P 500 ETF Trust, has risen to 13.64, double its post-election low of 6.68. The index is higher now than it has been about 70% of the time over the past year. “The general idea is there is an 80-95% chance of pretty low volatility, that’s why the VIX is relatively low, but there’s just more of a tail event being factored in,” said Chris Murphy, co-head of derivative strategy at Susquehanna.

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