Cost to Protect Against Downside Soars as S&P 500 Hits All-Time Highs (SPY) (VXX)
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With the S&P 500 hovering at all-time highs today, some wonder whether or not the good times will last.
Looking at options, you can get a decent idea. The CBOE VIX volatility index is a measure that calculates how much investors are willing to pay to protect against a drop in the S&P 500. The index carries the media-coined term "fear index," though "hedging index" might be appropriate as well.
The latest data has buying protection against a 10 percent drop in the S&P 500 (a put) through mid-April costing traders $85 per contract. By contrast, the cost for a call option with the same movement would be about $70 per contract.
Though large firms generally have used VIX options as a hedge against downside, smaller investors have also gotten in the game recently. The WSJ notes that January saw contract volume for VIX options at an average of 1.4 million per day, versus just 92,000 average contracts per day in 2007.
The ETF which covers the VIX is (NYSE: VXX), the inverse is (NYSE: XIV). The SPDR S&P 500 (NYSE: SPY) is the go-to S&P 500 ETF.
Looking at options, you can get a decent idea. The CBOE VIX volatility index is a measure that calculates how much investors are willing to pay to protect against a drop in the S&P 500. The index carries the media-coined term "fear index," though "hedging index" might be appropriate as well.
The latest data has buying protection against a 10 percent drop in the S&P 500 (a put) through mid-April costing traders $85 per contract. By contrast, the cost for a call option with the same movement would be about $70 per contract.
Though large firms generally have used VIX options as a hedge against downside, smaller investors have also gotten in the game recently. The WSJ notes that January saw contract volume for VIX options at an average of 1.4 million per day, versus just 92,000 average contracts per day in 2007.
The ETF which covers the VIX is (NYSE: VXX), the inverse is (NYSE: XIV). The SPDR S&P 500 (NYSE: SPY) is the go-to S&P 500 ETF.
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