Despite the hazardous political backdrop, global markets are "remarkably calm", says John Dizard in the FT. Yet many "large, conservative, real-money investors" are seeking out cheap ways of hedging themselves against a market crash.
The Skew index captures the level of unease in markets: it measures the difference between the cost of buying a put option on the S&P 500 which offers protection against a sharp fall and a call option, which does the opposite. It ranges between 100 and 150, and it is now at 140, among the higher readings since the index's inception in 2011. In short, investors in futures are happy "to pay over the mathematical odds for protection against a market decline".
The Skew is not a reliable market timing tool, but it's interesting to note that many investors are not as complacent as stockmarkets, which are hitting new highs, would have you believe. But beware dabbling in speculation, warns Dizard. Synthetic products such as those based on the Skew are "created by commodities dealers and traders, and tend to be ways for the professionals, not you, to make money".
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Stamp duty calculator: how much of a UK sold house price is taxed?Our stamp duty calculator shows you how much the tax will cost you, depending on which band the house price you’re paying falls into.
-
Investors return to equity funds – green shoots or end-of-tax-year blip?Equity funds saw net inflows in March for the first time in over three years. What’s driving this behaviour, and which regions are proving most popular?
