Hedge what’s actually falling - AI stocks
SPXXAI March 85% put costs 132bps vs 101bps for SPX equivalent
The 6th percentile on a 2-year lookback is the basis for that cheapness.
Downside protection on the S&P excluding AI stocks, which has fallen roughly 7% from its late-August peak while the cap-weighted index sits near all-time highs, you pay a roughly 30% premium over the equivalent SPX put.
The premium exists because SPXXAI is the index that is actually moving lower.
The cap-weighted SPX, dominated by the AI names, is suppressing implied vol at the index level even as the average constituent is well off its highs.
That’s roughly a 30% premium for protection on the part of the market that's actually falling.
SPXXAI March 85% put costs 132bps vs 101bps for SPX equivalent
The 6th percentile on a 2-year lookback is the basis for that cheapness.
Downside protection on the S&P excluding AI stocks, which has fallen roughly 7% from its late-August peak while the cap-weighted index sits near all-time highs, you pay a roughly 30% premium over the equivalent SPX put.
The premium exists because SPXXAI is the index that is actually moving lower.
The cap-weighted SPX, dominated by the AI names, is suppressing implied vol at the index level even as the average constituent is well off its highs.
That’s roughly a 30% premium for protection on the part of the market that's actually falling.