Investors worried that the stock market is due for a reversal may be able to hedge their position without changing their exposure to equities, according to Goldman Sachs. Arun Prakash from Goldman's derivatives research team proposed an options trade focused on the Cboe Volatility Index , or "Vix," to hedge against a market selloff.
Generally speaking, a call option gives the holder the right to buy the underlying asset at the strike price, and serves as a bet that the asset will rise above the strike price. Since the VIX itself is not a security, options trade on the index are settled in cash. The calls recommended by Prakash would be easily "in the money" if the index just jumped to its historical average for April, according to Goldman.
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