Crash-Obsessed Traders Splurge on Options at Two-Decade High

Seasoned investors, staring at a world clouded by war, inflation and economic uncertainty, are buying catastrophe insurance at a record clip.

Institutional traders paid $8.1 billion to initiate purchases of equity puts last week, the highest total premium in at least 22 years, Options Clearing Corp. data compiled by Sundial Capital Research show. Adjusted for market capitalization, demand for hedges matches levels from the 2008 financial crisis.

The spree is the latest evidence of sky-high anxiety on Wall Street in a market where strategists at firms from Morgan Stanley to Goldman Sachs Group Inc. are warning that the 2022 bear market has yet to see its bottom. Cash holdings rose in mutual funds and hedge funds cut equity holdings to multi-year lows. While all the bearishness set the stage for a short squeeze on Wednesday, it nevertheless speaks of extreme fear among pros.

“They’re buying protection against a crash at a pace unlike anything the market has ever seen,” said Jason Goepfert, chief research officer at Sundial. “The sudden and massive hedging activity of some of the market’s largest traders is unsettling.”