What looks like a safe bet carries a hidden danger
Other than simply pay up and pray for the run to keep going, what is a value-conscious investor to do? The pluckiest option—calling the market’s bluff and betting on a crash—has left many of the hedge funds that tried it running for cover. In June and July, say Goldman Sachs’s brokers, such funds abandoned their positions at the fastest pace in years. Those looking on may not thrill at the prospect of recreating their experience.
A growing number of investors are doing just this—or, in industry jargon, selling volatility. The trade-du-jour is the “buy-write” exchange-traded fund , a formerly obscure category that is now hoovering up capital. Since the start of 2023, buy-writeIn practice, such investors are buying baskets of stocks while selling call options on them. These are contracts that give the buyer the right to buy the stocks for a set price in the future.
The original investor, who sold the call option and bought stocks, is betting that share prices stay precisely where they were. That way, they get to pocket the option price without having to sell the stocks for less than they are worth. If prices instead increase, the option seller still keeps the premium, but must forgo all the share-price growth and sell the stocks for their original value.
Readers who do not believe in free lunches may sense a rather large catch coming. Yet it is not the familiar one applying to bets against market turbulence, which is that years of steady profits can be followed by a sudden, unexpected shock and a total wipeout. A buy-writemay well fall in value, but in this respect it is no riskier than a corresponding “vanilla” fund that just owns the underlying stocks.
Danmark Seneste Nyt, Danmark Overskrifter
Similar News:Du kan også læse nyheder, der ligner denne, som vi har indsamlet fra andre nyhedskilder.
Why we’re so f***ing angry at work – and how to stopNews, analysis and comment from the Financial Times, the worldʼs leading global business publication
Læs mere »
Mo Salah dilemma is unavoidable for Liverpool and Arsenal have just shown whyLiverpool have a Mohamed Salah decision to make and Jurgen Klopp could soon be forced to take action
Læs mere »
Billy and Paul's naked shenanigans in Corrie after wake-up callWhy not?!
Læs mere »
Why shouldn't Michael Fawcett return to his fixer role with the King?EPHRAIM HARDCASTLE: Michael Fawcett appears to have been set up as the public scapegoat, but with no charges to answer he effectively becomes an innocent man.
Læs mere »
Gnonto stand-off: State of play, why he wants to leave Leeds, could he be reintegrated?Willy Gnonto still wants to leave Leeds United, but the club are not obliged to sell him. So what's the latest and how might this unfold?
Læs mere »
Why Music Manager Scooter Braun Is in the SpotlightSpeculation is flying after reports that Ariana Grande and Demi Lovato have parted ways with Braun
Læs mere »