(Bloomberg) -- The reasons may vary but an awful lot of strategists are recommending hedges on U.S. equities right now.
JPMorgan Chase (NYSE:JPM) & Co. recommends buying bearish options on the SPDR S&P 500 ETF Trust because the market may be underpricing risks that a deterioration in corporate America’s health could hurts jobs. Bank of America Merrill Lynch (NYSE:BAC) suggests put-option trades because its model suggests increasing risk of trouble for the S&P 500. And Societe Generale (PA:SOGN) SA and Credit Suisse (SIX:CSGN) Group AG see some pockets in options tied to the index that are cheap.
The recommendations come after a turbulent August that saw markets gyrate to headlines on the U.S.-China trade war, tweets from President Donald Trump and comments from Federal Reserve officials. Another set of U.S. tariffs on Chinese goods took effect Sept. 1. Even so, the S&P 500 gained 1.1% on Sept. 4 to within 3% of its July peak, and futures rose in Asian hours on news that the U.S. and China will meet for trade talks early next month.
JPMorgan (NYSE:JPM) strategists Shawn Quigg and Marko Kolanovic say buying protection may be rewarding amid a likely weakening in the jobs data. Softening unemployment figures could weigh on equities, and options are pricing a move on the SPY (NYSE:SPY) ETF of about 1% through Sept. 6, which they deem as cheap.
Trade ideas from the firms include:
- JPMorgan (NYSE:JPM): Buy Sept. 6-expiry SPY (NYSE:SPY) $292 put options
- BofAML: Buy one S&P 500 October 2,825 put, selling two 2,700 puts and buying one 2,575 put
- SocGen: Sell one S&P 500 95% put with a December 2020 maturity, while buying 4.5 times the 70% put
- Credit Suisse (SIX:CSGN): Hedge with SPY put strategies
Credit Suisse’s Mandy Xu also says relative cheapness in puts that are far below current index levels with three-month expiry and shorter, amid little demand for the far out-of-the-money tails versus greater popularity of options closer to index levels.
BofAML’s models of market stress are flashing caution, causing strategists led by Lars Naeckter and Stefano Pascale to advice hedging bullish wagers.
