Heightened geopolitical risks are stoking market fear as, while the realities of the Federal Reserve keeping interest rates higher for longer are starting to settle in, sending the S&P 500 Index down 3.2 per cent for April and putting it on pace for its first monthly loss since October. The mounting uncertainties have traders buying put options that pay off if stocks keep tumbling.
Take Mike and Matt Thompson, portfolio managers at Little Harbor Advisors in Marblehead, Massachusetts. The brothers said they don’t always maintain hedges, but over the past couple of weeks, they’ve bought VIX futures to protect against a spike in volatility. On Friday, the Cboe Volatility Index — also known as the VIX, which is a measure of the 30-day implied volatility of the S&P 500 — traded above the key 20 marker for the first time in six months and hit its highest level since October. The index is on track to close above its 200-day moving average for 15 consecutive sessions, its longest streak since October 2022.
Puts connected to Invesco QQQ Trust Series 1 ETF , which profit if the Nasdaq 100 dives, are among the plays favored by Michael Purves at Tallbacken Capital. His logic is simply “if you think that pan-asset selling is coming, then what rallied the most will be sold the most,” he said.