The S&P 500 reached a record high following widespread buying activity. Currently, S&P 500 futures have stabilised, showing no immediate signs of a downward trend.
US equity futures experienced a recovery, moving from a pre-market decline of up to 17 points to a flat position. There are no indicators suggesting an immediate retracement from these new record levels.
S&P 500 Reaches Record Highs
We are seeing the S&P 500 at record highs, but the recovery from a pre-market dip to flat suggests a pause in the upward momentum. With the VIX, a measure of expected volatility, hovering at a low 13, the market is not pricing in much near-term risk. This environment makes buying options relatively inexpensive for hedging or speculation.
The latest Consumer Price Index report for August showed inflation ticking up slightly to 3.4%, adding a layer of concern for us. All eyes are now focused on the Federal Reserve’s upcoming meeting on September 24th, which will be critical. Traders might consider using options to hedge against any unexpectedly firm language on interest rates.
We should also remember that September has historically been a challenging month for stocks, a pattern we observed looking back at the volatility in 2022 and 2023. This seasonal trend suggests the market could face headwinds even without a specific negative catalyst. This reinforces the case for considering protective positions in our portfolios.
Considering Protective Positions
Given the low cost of options, buying puts to protect long equity positions is more affordable than it has been for most of the year. We could also look at strategies like selling call credit spreads far above the current market price. This approach would generate income while betting that these new record highs will serve as a point of resistance over the next few weeks.
