Some managers are now adding protection to portfolios as the cost of certain bearish bets is trading at discounts. The S&P 500 has now gone 32 months without a decline of 10% or more, and has failed to post a daily gain or loss exceeding 1%, the longest stretch of calm since 1995. This stability has crushed the demand for options that protect against turbulence, pushing the CBOE Volatility Index (VIX) down 43 percent from a peak in February, hitting a seven-year low on June 6. While there may be debate as to the need for protection at this time, the cost of protection appears inexpensive.
Puts Shrink Amid Longest Run of Market Calm Since 1995
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