Downside protection is historically cheap again
The host and guest argued that the cost of market downside protection has fallen to historically cheap levels, presenting an attractive opportunity to hedge against an inevitable market correction.
The argument
The host noted that a similar setup a year ago resulted in highly profitable long-dated put options when the market reversed. While timing corrections is difficult, the speakers argued that buying protection when volatility is cheap remains a prudent risk-management strategy.
The thesis, stress-tested
✓ What validates it
- ✓An increase in market volatility indices (VIX)
- ✓A near-term market pullback of 5-10%
▸ Risks discussed
- ▸Timing a market correction is notoriously difficult
- ▸The market's bullish momentum could persist longer than expected
Hear it yourself
"only been about nine times that we've gone eight weeks in a row of advances. And when you start talking about nine or ten weeks or eleven weeks, those become much more rare historically. So we're starting to get into to more, you know, kind of more of a category where a correction becomes a lot more a lot more probable."
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