Investors are increasingly turning to hedging strategies as they navigate potential risks in the S&P 500, with the cost of protection against market pullbacks reaching its lowest level since before the pandemic. This trend is driven by a shift in sentiment, as aggregate buyside positioning in US equity futures has decreased after reaching an all-time high, according to Lori Calvasina of RBC Capital Markets. The uncertainty surrounding the Federal Reserve's interest-rate cut trajectory adds to the cautious outlook, with traders bracing for potential volatility.
The appeal of hedging is further amplified by the historically low cost of S&P 500 one-month 25-delta put implied volatility, which measures the expense of guarding against moderate declines. As the market adjusts to post-election dynamics and anticipates changes in stabilizing flows, investors are increasingly considering put options to mitigate downside risks. The S&P 500 Index is currently trading at 6,089.35 as of 12:10 on December 11, reflecting a rise from its last close of 6,034.91 and nearing its intraday high of 6,089.91.