The World's Largest Hedge Fund Makes a Bet on a Market Sell-off

NYSE: SPY | SPDR S&P 500 ETF Trust News, Ratings, and Charts

SPY – The world’s largest hedge funds has used options to establish a billion dollar bearish position.

The world’s largest hedge fund has used options to establish a billion dollar bearish position.  Is this a big bold prediction or merely a conservative, protective action?

According to an article in the Wall Street Journal Bridgewater Associates has accumulated a massive amount of put options tied to broad indices and ETFs like the SPDR 500 (SPY) and European Pro Shares (ULE) over the past through over the past few months.

Put options give you the right to sell the underlying shares at a specified price or strike within a given time period or expiration date.

The total commitment is $1.5 billion and is focused on options with a strike 5% below current levels and expire in the March time frame.

While this is grabbing headlines for the size and the fact that Bridgewater founder and CEO Ray Dalio has become increasingly vocal about ‘broken capitalism’ and a “world gone mad”, let’s put this position in the correct context. Bridgewater has some $150 billion in assets under management (AUM), so this is a mere 1% allocation.

It also is most likely a hedge against an overall portfolio which has a clear bullish bias, with an estimated 90% long vs. 25% short positions—the 115% total is due to leverage.  The fact this leverage is down from 150% may be more telling than the put purchase.

Indeed, in the bigger picture the purchase of broad portfolio put protection seems nothing less than prudent.

U.S. equities are up 29% since last December lows and Euro based markets have had a big 15% run in just the past month.

With implied volatility, as measured by the CBOE Volatility Index, down to 12, a historically low level, put options are cheap making portfolio insurance relatively inexpensive and timely.

The time frame of the March 2020 expiration is also not random — March is significant in the Democratic primary because the party’s delegates will have been figured out by the end of that month.

Many on Wall Street have voiced fear that if Elizabeth Warren or one of the other far left candidates secures a nomination, it will be bad news for stocks.

As you can see, Bridgewater is not alone as wanting to guard against this outcome as put positions with the March expiration have been building.


The bottom line is I’ve often discussed how not to read too much into “unusual” option activity because you don’t know how it fits into an overall portfolio’s positioning.

And given that Bridgewater runs on a strict rules based model, I’d take this latest move as prudent protection, rather than a big bearish bet.

SPY shares were trading at $310.82 per share on Friday afternoon, up $0.55 (+0.18%). Year-to-date, SPY has gained 26.10%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Option Sensei

Steve has more than 30 years of investment experience with an expertise in options trading. He’s written for, Minyanville and currently for Option Sensei. Learn more about Steve’s background, along with links to his most recent articles. More...

More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
SPYGet RatingGet RatingGet Rating

Most Popular Stories on

Inflation Not Fading Fast Enough for Stock Investors

Investors may have celebrated the end of high inflation too soon. The CPI report shows inflation bouncing higher and thus pushing back the start date for Fed rate cuts. This has the S&P 500 (SPY) coming off recent highs. This begs questions like how much more downside could we see? And when will the bull market get back on track? 44 year investment veteran Steve Reitmeister shares his answers to these questions in this timely commentary including a preview of his top picks to stay ahead of the pack. Read on below for more...

3 Auto Stocks to Consider Over TSLA in April

Tesla (TSLA) reported a decline in deliveries in the first quarter, and Wall Street expects the company to deliver fewer vehicles than last year. Furthermore, rising competition, slowing EV sales, and stretched valuation make TSLA unattractive from an investment standpoint. Considering these factors, investors could consider buying fundamentally strong auto stocks Blue Bird (BLBD), Rolls-Royce Holdings (RYCEY), and Stellantis (STLA) over Tesla (TSLA). Read more...

3 Top-Rated Tech Stock Buys for Value in April

The technology sector is undergoing a notable surge, propelled by increasing digitalization endeavors among businesses and governmental support for technological progress. So, fundamentally sound tech stocks Box Inc. (BOX), Teradata (TDC), and Materialise (MTLS), which seem pretty undervalued, might be ideal buys this month. Continue reading...

Top Software Stocks at the Forefront of Market Gains

The software industry's prospects appear bright due to increasing investments in digital transformation, high demand for advanced software services from various sectors, and the integration of emerging technologies such as generative AI. Therefore, investors could consider buying quality software stocks Autodesk (ADSK), DocuSign (DOCU), and Pegasystems (PEGA) for solid gains. Read more...

Updated 2024 Stock Market Outlook

The bull market continues to rage on with the S&P 500 (SPY) making new highs. That is the past...the question is what does the future hold? That is why 44 year investment veteran Steve Reitmeister provides this updated 2024 Stock Market Outlook to help you carve a path to outperformance the rest of the year. Read on below for the full story...

Read More Stories

More SPDR S&P 500 ETF Trust (SPY) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All SPY News