Options and credit risk in the news…

See “Bridgewater Makes $1.5 Billion Options Bet on Falling Market” – this article details how Bridgewater has purchased $1.5 billion worth of put options written on the S&P 500 and Euro Stoxx 50 indices which would pay off if either the S&P 500 or the Euro Stoxx 50—or both—fall in value by this coming March.  However, the notional value of this options position is small relative to the firm’s net long positions in equities, so apparently Bridgewater has for all intents and purposes merely purchased some insurance against downside risk.

Also see “Lenders Brace for Private-Equity Loan Defaults” on how financial institutions have been raising their default probability estimates for loans to private-equity-owned companies; article notes a 10% deterioration in credit risk in these so-called leveraged loans.

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