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Growing Demand for Market Crash Protection Despite Post-Election Rally

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OPTIONS PROTECTION,EQUITY MARKET CRASH,POST-ELECTION RALLY

Despite a post-election rally driving U.S. stocks to record highs, demand for options protection against an equity market crash is increasing. The S&P 500 has reached an all-time high following Donald Trump's victory, yet indicators like the Nations TailDex Index and Cboe Skew suggest heightened caution due to potential risks such as inflation and trade disruptions.

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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