Some investors are skeptical. Man Group’s van Dooijeweert said it’s better to get downside protection that isn’t tied to rates, because plain equity puts are still relatively cheap.

“Why be cute?” asked van Dooijeweert. “Our general view is we should only add complexity when we get enough of a discount for it.”

But to some investors and strategists, the potential for cheaper hedging can be attractive. Nitin Saksena, head of US equity derivatives research at Bank of America called out S&P 500 puts tied to two-year rates. Depending on how one constructs the contracts, the options could pay off if markets prove wrong about how quickly the Federal Reserve cuts rates or if the central bank does cut rates aggressively in the case of recession.

“What feels different is just how much inflation, policy and rates has been front and center in the past two years,” Saksena said. “People have flocked to the product because of how volatile and active the macro environment has been.”   

This article was provided by Bloomberg News.

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