Goldman Sachs: Buy `Crash Protection' Puts on European Stocks

Discussion in 'Wall St. News' started by makloda, Jul 1, 2008.


    June 30 (Bloomberg) -- Investors should buy ``crash protection'' against a plunge this year in European stocks because losses are likely and insurance costs are low, according to Goldman Sachs Group Inc.

    The world's most-profitable securities firm recommended Dow Jones Euro Stoxx 50 Index puts that expire in December and have a strike price of 3,000, or 11 percent less than the measure's closing level today.

    ``High inflation/low growth is an increasing downside tail risk,'' London-based derivatives analysts at Goldman, which had the second-ranked equity derivatives research team in Institutional Investor magazine's 2007 survey, wrote in a report dated June 26. ``If that risk crystallizes, we think it means material rather than modest downside.''

    The Euro Stoxx 50 plunged 24 percent to 3,354.20 in 2008 and closed at the lowest since November 2005 last week. The December 3,000 puts on the index fell 6.7 percent to 83.50 euros today. They cost as much as 189.30 euros in March.

    European-style puts convey the right to sell a security for a certain amount, the strike price, on a given date. Some investors buy or sell options to guard against changes in the prices of securities they already own. Others use the contracts to bet price swings, or volatility, will increase or decrease.
  2. I agree.
  3. 83.50 ? Cheap, cheap, cheap....:D :) :p
  4. If US stocks are plunging, European stocks can't hold.

    European economy is far worse than US, they just disguise their numbers by accounting Euro strength as profits.
  5. Time to short puts? :)

  6. Of course !!!!:D :p :)