Despite the mainstream media's constant spewing of the chaos and carnage a Trump 'win' in November will cause to the global financial markets (remember Brexit?), it seems that as Hillary's lead grows, so professionals are piling into downside protection at the fastest pace in US history…
As Bloomberg notes, even with Hillary Clinton taking her biggest lead in the polls since August versus Republican Donald Trump, the relative cost of hedging a 5 percent decline in an exchange-traded fund tracking the S&P 500 is twice the cost of betting on a gain, according to data compiled by Bloomberg. High readings in the indicator known as skew came even as the CBOE Volatility Index spent the previous three weeks trading below 14, on average.
Blame it partly on the experience of investors during the U.K.’s vote to leave the European Union, when weeks of calm was shattered by a political event and options worked in damping the resulting plunge. The market may be seeing its smallest fluctuations in more than a year, but traders remain on alert for events that could whip up declines.
“If there’s a potential shock to the system when you have low volatility, that boosts skew,” Matt Friedman, senior vice president of options trading at Convergex in New York, said by phone. “Investors are bracing for potential downside risk, regardless of how likely it is. At the same time, you’re seeing people dismiss the potential upside.”