, $95 billion was pulled from equity funds in the year through April 24 — a period in which the S&P 500 jumped 17% and hit a new closing high.
While some of the cash may have found its way into exchange-traded funds, there was evidently doubt in some corners about the sustainability of the rally. If you fall in the latter camp, Bank of America has formulated a cheap options-trading strategy to help you capture the upside of continued gainsIn a recent note to clients, the firm's equity-derivatives analysts outlined why they expect stocks to continue rallying from here.
With these catalysts in place, BAML's recommendation is to buy short-dated S&P 500 call options to profit from bets that the market willThere's recent precedent for how the strategy would fare. The last time there was a true melt-up in stocks, from late 2017 into early 2018, short-dated calls would have locked in profits on the way up. And, they would have limited losses during the meltdown that followed in February.would have gained ~7% from Oct. 17 through the Jan.
But there's more to it than that: the S&P 500 is making stronger comebacks after bear markets. So-called V-shaped recoveries have boosted the returns of call options since 2012 relative to the decade prior, Bowler said. He is confident that a similar options strategy would win again in the event of a melt-up. One final reason why is that the strategy has been particularly effective when strong rallies occur from a base of low volatility — similar to what happened in 2017 and what could take place again very soon.
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