Equity Option Traders Play Defense With Fed Rate Cut on Deck
- S&P 500 hedging seen last week ahead of key Fed meeting
- Markets are weighing chances of 25 or 50 basis point rate cut
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Stock market investors are playing defense ahead of this week’s highly anticipated Federal Reserve meeting following a shift toward traditionally safer sectors, even as sentiment edges toward a larger interest-rate cut by the central bank.
The S&P 500 Index’s options skew — which gauges how expensive it is to protect equity portfolios — is still above the level from before the early-August swoon, even with equities a whisker away from all-time highs. That’s because traders are hedging for downside risks. While the Fed is widely expected to cut interest rates on Wednesday for the first time since the depths of the pandemic, the question is how much.