Stocks continue surging to record highs. Here's how to hedge
Key takeaways
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- The S&P 500 has staged an impressive recovery, rallying more than 17% off its March lows on a combination of tariff relief optimism, resilient earnings and a powerful rebound in semiconductors.
- Protection costs less when volatility is compressed.
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The S&P 500 has staged an impressive recovery, rallying more than 17% off its March lows on a combination of tariff relief optimism, resilient earnings and a powerful rebound in semiconductors. It is a move that has rewarded patience. It is also one that has quietly made hedging both more affordable and more strategically sensible.
The arithmetic is straightforward. Protection costs less when volatility is compressed. With the VIX sitting in the high teens, well below the stress levels that accompanied the March selloff, the implied volatility priced into put options has pulled back sharply. Buying a one-month 2-2.5% out-of-the-money put (about 30 "delta", sometimes written as 30^) today costs a fraction of what it cost when the market was in free fall. If you're the type of investor that likes to hedge when you can, rather than when you have to, now's your chance.