Traders who expect the stock market to crash sometime during the next year are in luck: The cost of betting against a blowup hasn’t been this cheap since at least 2008, according to a team of analysts at BofA Global Research.
“Since our data began in 2008, it has never cost less to protect against an S&P drawdown in the next 12 months,” according to a team led by Benjamin Bowler, BofA’s top global equity-derivatives strategist. 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 “in the money” is called the “strike price.” Traders can typically exercise or sell “in the money” 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.
Upfront premiums paid on such a trade is in the low single-digits, meaning the cost of protection is literally a few cents on the dollar.
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