Donald Trump’s election victory has Wall Street bullish about tax cuts and deregulation boosting corporate profits. Even after the stock market’s post-election rally came to a screeching halt on Wednesday when the Federal Reserve signaled a hard line on interest rates, the S&P 500 remains up since Trump’s win. The VIX, popularly known as the Street’s “fear gauge,” also sat well below its long-run average before spiking on Wednesday, and it remains nowhere near the record high it hit in August.
One corner of the derivatives market—known colloquially as “crash protection”—may be telling a more complicated story, however. When investors buy S&P 500 options that only generate profit if stocks plunge, they are likely hedging their losses in the event of a market swoon. The level of the CBOE SKEW Index, a cousin of the VIX, can serve as an indicator that investors are bidding up the relative price of those doomsday options.
