A Top Investment Bank Just Made a Move to Protect Against Another S&P 500 Crash

Discussion in 'Wall St. News' started by dealmaker, Feb 25, 2018.

  1. dealmaker


    UBS continues to be optimistic on stock markets this year. But, that hasn't stopped them from trying to protect against more volatile trading conditions.

    ByBrian Sozzi

    Just because a semblance of market tranquility has returned after February's early correction, it doesn't mean the waters will be smooth sailing into 2019.

    Subsequently, investment bank UBS has sought to protect its clients in these choppier waters by purchasing a 10% out-of-the-money put option on theS&P 500. If the S&P 500 takes another dive, the position should become profitable. The bank says it may add to the position in coming months in order to diversify its strike prices.

    "Should our base case of modestly higher inflation, measured Fed interest rate rises (one per quarter), and rising equity markets materialize, this position most likely will not be profitable," says UBS chief investment officer Mark Haefele. "Yet we think it is prudent to potentially sacrifice some of our expected returns in order to boost portfolio stability if fears of higher interest rates continue to impact markets."

    Haefele says he has made no changes to UBS' existing equity positions.

    "We have chosen to implement the position on the S&P 500, not because we have a particularly negative view on the U.S. market, but because the S&P 500 option market is the world's most liquid, and the index is a close proxy for global equities (U.S. equities represent 52% of global equities)," Haefele adds.

    Somehow we think other investors aren't following UBS' lead here, which is sad given the wake-up callmarkets received earlier this month.

    murray t turtle likes this.
  2. Visaria


    That's probably because the put option is very expensive.
  3. yassss buy that premium
    murray t turtle likes this.
  4. newwurldmn


    I wouldn't be selling them. Especially when you consider how much short vol (real and synthetic) is in the market that a 5percent selloff created a 100percent rally in the vix futures.
    samuel11 likes this.
  5. sss12


    And what size are they recommending ? Have fun explaining to you client that your long puts just expired worthless when the market just went sideways .... Just another BS 1/2 story with no specifics...why post it ?
  6. Buy1Sell2


    Watch it----
    bullmarket79 likes this.
  7. sss12


    Do you want to answer the questions ?
  8. Buy1Sell2


    Pay attention.
    murray t turtle likes this.
  9. sss12


    Ok, I'll play..what are you refering to ?
  10. JackRab


    He's a perma bear :D
    #10     Feb 26, 2018
    murray t turtle and sss12 like this.