Debt-Ceiling Tail Hedges Are ‘Cheap Lottery Tickets,’ Bank of America Says
- Options on stocks, gold imply 30-to-1 payout if 2011 repeats
- Defensively positioned investors expect a timely resolution
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Investor indifference to the threat of a prolonged debt-ceiling impasse has left a handful of tail-risk strategies almost too cheap to pass up.
That’s according to Bank of America Corp. analysts, whose math shows that purchasing hedges now with options on the S&P 500 and gold would stand to yield profits more than 30 times the upfront premium should negotiations break down and markets react like they did in 2011.