Banks Turn to Exotic Crash Puts to Hedge Risks From Leveraged ETFs

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โดย Bloomberg·Read original

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Investment banks are increasingly using exotic derivatives known as crash puts to hedge the growing risks from leveraged single-stock ETFs. These over-the-counter products allow banks to transfer the tail risk of a catastrophic one-day drop in underlying stocks to institutional investors, with premiums surging amid booming demand. A Goldman Sachs pitch in May offered yields of 14.2% to 20% for selling crash protection on South Korea's SK Hynix and Samsung Electronics, while BNP Paribas quoted premiums of up to 6.5% for SK Hynix. The market has expanded as leveraged ETF assets globally approach a quarter trillion dollars, with banks such as Barclays, Citigroup, Goldman Sachs, and Bank of America among the most active swap providers. Critics warn that the complexity and opacity of these products could pose risks to financial stability.