The cost for hedge funds of taking out “Black Swan” insurance against a sharp fall for US equities has fallen to the lowest level since before the financial crisis as stock markets continue to touch all-time highs.
Months of low market volatility has forced down the price of options allowing hedge funds to place bets that would make them 25 times on their money if the S&P 500 index fell by 7 per cent over the next month.
“The price of constructing hedges against a fall in equity markets are at their lowest levels ever, while equity markets are trading at all-time highs,” said Deepak Gulati, chief investment officer of Argentiere Capital and former head of equity proprietary trading at JPMorgan Chase.
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