Cheap put options offer attractive hedging
The guest argued that extreme market complacency has made downside portfolio protection exceptionally cheap, presenting an attractive opportunity to buy put options.
The argument
Lance Roberts noted that because market participants are overwhelmingly focused on buying call options, put options are trading at historically low prices. His firm has begun accumulating November put options on the S&P 500 to hedge equity exposure against an impending correction.
The thesis, stress-tested
✓ What validates it
- ✓An increase in the VIX index
- ✓A rise in the put-call ratio indicating returning market caution
▸ Risks discussed
- ▸Options premium decay (theta) if the market remains flat or continues to melt up
- ▸Timing the correction incorrectly could result in the options expiring worthless
Hear it yourself
"So I'm going into a lot more detail on on semiconductors in this weekend's Bolvera report. So it'll be on know, get that on our x page at lance roberts or realinvestmentadvice.com. But this is a this is about a 75% decline in the markets just to get back to that moving average, which it will most likely do. Can't nothing's guaranteed. But historically, it says that you're gonna come down and retrace this moving average at some point. Now what causes that or when it occurs? Who knows? But, you know, those things actually they they they occur repeatedly throughout history, and those long term support levels become very critical to the long term game of of what you're playing into."
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