Stocks continue surging to record highs. Here’s how to hedge
S&P 500 It has staged an impressive recovery, recovering more than 17% from March lows thanks to a combination of tariff reduction optimism, resilient earnings and a strong recovery in semiconductors. A move that rewards patience. It’s also something that quietly makes hedging both more affordable and more strategically sound.
Arithmetic is simple. When volatility is compressed, hedging costs less. with VIX Implied volatility priced in put options has pulled back sharply, remaining in the high teens, well below the stress levels that accompanied the March sell-off. Buying a 2-2.5% one-month put (about 30 “delta”, sometimes written as 30^) today costs a fraction of what it would have cost when the market was in freefall. If you’re the kind of investor who likes to hedge whenever possible rather than when you have to, now’s your chance.
There are good reasons to think hedging still makes sense; Consider the conditions driving the rise: tariff progress, earnings flexibility, and hopes that the bottleneck in the Strait of Hormuz can be resolved. This and momentum are not the same as resolved fundamentals. The Federal Reserve remains effectively on the sidelines as high oil prices push up inflation. As a result, Treasury yields have risen from year-to-date lows, and gold continues to signal that institutional safe-haven demand has not evaporated, although it has pulled back from its January peak.
equally weighted S&P 500 The emissions-weighted index rose further but remained near previous highs. If one cares about “breadth”, this difference may require attention.
After a 17% move, portfolios that entered the year defensively are now sitting on meaningful unrealized gains. The asymmetry in decisions is changing: The negative cost of being wrong increases, while the marginal benefit of more positive involvement decreases.
Buying a short-term 30-day, 30-delta put could lock in a meaningful portion of these gains at current implied volatility levels. For example, you could pay around $7.40, or ~1% of the current SPY level, to buy the $730 weekly strike put on June 26th.
One more thing: if we see a meaningful decline, be sure to “monetize” your hedge. If the money is deposited roll down or down and out. Failure to do so is akin to not filing an insurance claim in the event of an accident; premiums are wasted.
The best time to buy insurance is not when the house burns down. After the smoke clears, before the next storm forms.
