Hedge Now After Stock Gains as Earnings Await, Susquehanna Says

(Bloomberg) -- After a near 25% rally in the S&P 500 and with three quarters of its members due to report in the next three weeks, now is the time for investors to hedge, according to Susquehanna Financial Group LLLP.

“No matter what side of the ‘bottom is in due to unprecedented Fed/stimulus/social distancing’ or ‘mother of all bear market bounces’ fence you are on, hedging after such a spike in the S&P 500 makes sense,” derivatives strategist Chris Murphy wrote in a note Monday.

The U.S. benchmark tumbled 34% from its Feb. 19 record through March 23 as the impact of the global spread of coronavirus bulldozed markets. But since then, it has rallied 23% amid waves of fiscal and monetary stimulus and as some infection data appears to show signs of improvement.

JPMorgan Chase & Co. and Goldman Sachs Group Inc. strategists have recently said markets are likely past the worst, though others see more losses coming. At the very least, Susquehanna’s Murphy said, it’s “sure to be a precarious earnings season.”

For a tail hedge ahead of earnings news, Murphy is recommending to clients a put-option spread on the SPDR S&P 500 ETF Trust that offers a 12-times payout should the gauge retest its recent lows.

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