Left tail protection via put spreads
The speakers argued that investors should use recent market bounces to reset downside hedges on the S&P 500 due to fragile underlying market conditions.
The argument
Patrick Ceresna highlighted structural stresses building in private credit, systematic flow triggers being hit, and weak leadership in mega-cap stocks. He suggested a downside put spread as an efficient way to buy protection with a defined risk profile.
The thesis, stress-tested
✓ What validates it
- ✓S&P 500 breaking below key moving averages
- ✓An expansion of the VIX index indicating rising market volatility
▸ Risks discussed
- ▸A rapid de-escalation of geopolitical tensions could cause volatility to collapse, eroding the option premium
- ▸A near-term market bounce could render the short-dated puts worthless at expiration
Hear it yourself
"Interestingly, a similar idea was highlighted earlier this week by Goldman Sachs derivatives trader Brian Garrett, who suggested that investors use the recent bounce to reset downside hedges on the S and P 500. His desk specifically pointed to a ninety five eighty five downside put spread as an efficient way to express that view."
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