Goldman Sachs derivatives trading expert Brian Garrett recently issued a warning that the U.S. stock derivatives market is experiencing an &#34;unprecedented&#34; abnormal state: the cost of protection for S&amp;P 500 index options has reached a nearly thirty-year low.
Specific data shows that the cost of a one-month 100% strike price put option is only 95 basis points, meaning the S&amp;P 500 index only needs to drop 50 points to break even.
In stark contrast to the low hedging costs is the current high demand for U.S. stock financing—the AXW spread, which measures stock financing demand, has risen to levels close to those before the 2008 financial crisis.
Analysis suggests that this reflects the market's pursuit of returns while maintaining an extremely low level of vigilance towards potential risks.
<h2>Stock Financing Demand Hits Highest Level Since Financial Crisis</h2>
Currently, the AXW spread, which measures stock financing demand, has risen to levels close to those before the 2008 global financial crisis.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/63ee8b30-3ed6-48eb-845d-5272ba80611a.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/63ee8b30-3ed6-48eb-845d-5272ba80611a.png"/>
The AXW spread reflects the degree of market demand for stock financing and is also an important indicator of stock leverage costs—the larger the spread, the higher the cost investors must pay to obtain leveraged trading, which also indicates that market leverage concentration is increasing.
Goldman Sachs futures trader Robert Quinn pointed out:
<blockquote>
&#34;Current stock financing has reached historical highs, and this trend may continue until the end of the year.
As financing costs have become a significant factor affecting investment returns, investors may need to consider alternative ways to gain leveraged stock exposure.&#34;
</blockquote>
<h2>Options Protection Cost Hits 30-Year Low</h2>
What draws more market attention is that the cost of portfolio protection is at a &#34;once-in-a-generation&#34; low.
Goldman Sachs derivatives trading expert Brian Garrett issued a warning that the cost of one-month options for hedging the S&amp;P 500 index has fallen to one of the lowest levels in nearly thirty years—this sharply contrasts with the current high valuations in the market.
Garrett stated:
<blockquote>
In the options trading field, the current market is approaching &#34;unprecedented&#34; levels.
</blockquote>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/9105ff1d-f3e3-452c-885c-d51e8406e809.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/9105ff1d-f3e3-452c-885c-d51e8406e809.png"/>
Furthermore, Goldman’s traders explained that the cost of a one-month 100% strike price put option is only 95 basis points. This means that as long as the S&amp;P 500 index drops 50 points within the next month, investors can break even.
Such low hedging costs reflect the market's extremely low level of vigilance towards risks, creating a dangerous contrast with the potential bubble in current AI concept stocks and the overall stock market

The demand for leverage in the US stock market has soared, while the cost of portfolio protection is at a "once in a generation" low

- Goldman Sachs derivatives expert Brian Garrett warns of an "unprecedented" state in the U.S. equity derivatives market, with S&P 500 index option protection costs hitting a near 30-year low.  
- The AXW spread, which measures stock financing demand, has surged to levels close to those before the 2008 financial crisis, indicating high demand for equity financing despite low hedging costs.  
- This situation reflects a dangerous contrast between the market's pursuit of returns and its low vigilance towards potential risks, particularly amid high valuations and possible bubbles in AI stocks.

Goldman Sachs warns! The U.S. stock derivatives market shows "unprecedented" anomalies