Get Paid to Wait to Buy a Bigger Dip

By selling put options backed by fixed-income in their portfolio, clients can capitalize on elevated levels of volatility, while obligating themselves to buy stocks only if the market falls even further. Specifically, clients can generate ~13% in annualized premiums by selling 3-month, 5% OTM put options on the S&P 500. Clients keep this premium regardless, and will only be obligated to buy the market if it’s down an additional 5% 3 months from now. This would be buying at a total drawdown of approximately 24%* from market highs, turning this abrupt selloff into a great opportunity for risk-adjusted return.  

*Market drawdown based on data from 12/27/18, Source: Bloomberg

*Market drawdown based on data from 12/27/18, Source: Bloomberg

 
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