Investors are buying record amounts of insurance policies to protect themselves from a sale that has already wiped trillions of dollars from the value of U.S. stocks.

Large investors spent $34.3 billion on options in the four weeks ended Sept. 23, with a surge in purchases of put option contracts on stocks and exchange-traded funds, according to Options Clearing Corp data analyzed by Sundial Capital Research. doing. The total was a record high for data going back to 2009 and four times his average since early 2020.

Institutional investors have spent $9.6 billion in the past week alone. The splurge underscores that the big funds want to protect themselves from his nine-month plunge, with central banks around the world aggressively raising interest rates to keep high inflation in check. Overheated.

“Investors [US] The Fed is so constrained by inflation that it can no longer rely on inflation to manage the risk of asset price volatility, so the Fed needs to take more direct action. I have. .

Jason Goepfert, head of research at Sundial, said that after adjusting for the growth of the U.S. stock market over the past two decades, the volume of equity put option purchases is roughly at levels reached during the financial crisis. In contrast, there is less demand for call options that pay out if the stock price rises.

A line chart of premiums spent to initiate new put option contracts after 4 weeks ($ billion) shows big money managers hedging against market declines.

This year’s sell-off plunged the benchmark S&P 500 stock index down more than 22% into a bear market, but the decline was relatively contained and lasted for months, not weeks. This has frustrated many investors who have hedged with put his options contracts or bet on Cboe’s surge in his Vix volatility index, finding that the protection does not act as the intended shock absorber.

The S&P 500 suffered its biggest drop in more than two years earlier this month, according to BNP Paribas strategist Greg Bootle, while the Vix failed to break above 30. In general, big drawdowns push his Vix well above that level, he added.

Last month, asset managers began buying put contracts on individual stocks, betting they could better protect their portfolios if they hedged against big moves by companies like FedEx and Ford.

“You’ve seen this extreme dislocation. It’s very rare to see dynamics like this: “This is a big structural shift that doesn’t happen every day.”

Investors and strategists say the gradual decline in major indices is due in part to the fact that investors hedged heavily after falling earlier in the year. has also slashed its stakes after a dismal start to the year.

Line chart of short-term volatility skew shows demand shifting toward hedging against declines in individual stocks

As stocks plunged again on Friday, with more than 2,600 companies hitting new 52-week lows this week, Cantor Fitzgerald said his clients could benefit from hedging and taking out new insurance to keep prices lower. It said it was establishing a new trade at the strike price.

Wall Street strategists have cut their year-end forecasts in light of the Fed’s tightening policy and a slowing economy, warning that corporate profits will soon be eaten away. Goldman Sachs cut its forecast for the S&P 500 on Friday, ditching its year-end rally bet, expecting the benchmark to fall further.

“The trajectory of inflation, economic growth, interest rates, earnings and valuations are all more fluid than usual,” said Goldman strategist David Kostin. We adopt the view that a hard landing scenario is inevitable.”

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