Correction Protection on S&P 500 gets pricey
Out-of-the-money options with a strike price 10% below the current level of the S&P 500 are getting pricey. The difference between the implied volatility of 12-month puts on the stock index with a strike at the money and a strike at 90% of the current value has risen to nearly 4 points, compared to 3 points a year ago.
That’s a nerdy way of saying that stock investing has become a loser’s game: with so much price appreciation to lock in, investors will pay up for insurance against a correction.
Volatility still isn’t especially high by historical standards.
The extra cost for deep out of the money protection, though, suggests that if the market corrects, it will correct hard and fast.
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