Puts with a strike price 10 percent below the Nifty cost 8.2 points more than calls betting on a 10 percent gain on Oct. 8, the least since Sept. 19, one-month implied volatility data compiled by Bloomberg show. The Indian stock index, which has climbed 1.7 percent this year, tumbled 26 percent in October 2008, the month after Lehman Brothers Holdings Inc. filed for bankruptcy.
UBS Global Asset Management, a money manager that oversees $644 billion, said it has bought Treasury options to hedge against the U.S. defaulting should politicians fail to agree on raining the nation’s debt ceiling.
The company bought two-year Treasury puts and sold those on German two-year note futures to mitigate the risk, according to Brian Fehrenbach, the company’s Chicago-based co-head of U.S. multi-sector fixed income.
“That’s part of our defensive strategy and it’s something we hope will not be tested,” Fehrenbach, a former derivatives trader, said in an interview in London. “The uncertainty in Washington doesn’t promote confidence. The longer they go without a resolution, the more risk there is for a last-minute mistake.”