The cost of downside protection in the financial markets as seen through option costs on the CBOE has been skyrocketing as a result of the turmoil and volatility from the financial crisis.
Contracts to protect against a decline in the Standard & Poor’s 500 Index for two years cost $15,160 on the Chicago Board Options Exchange at the end of last week, compared with $6,875 in 2007, according to price-adjusted data compiled by Bloomberg. The current level shows traders expect the benchmark gauge for U.S. equities to fluctuate twice as much in the next two years as it has since 2000.
Source: Bloomberg
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