A Correction in the Making ? From Goldman Sachs

Derivatives specialists at Goldman have put up an interesting piece of research. Unfortunatelly, it only covers the US equity market.

From GS:

Over the past 9 months, the cost of SPX 55% OTM 5 year equity puts has more than doubled while the cost of 10 year puts is up 50%+. Long-dated options markets appear increasingly concerned about the potential for a decline in the S&P 500. Equity valuation and CDS spreads have been highly correlated with put prices over the past several years, but long-dated put prices have diverged. We see reason for concern as put prices were up a similar amount in 2007 ahead of the financial crisis, diverging from credit and equity at that time as well.

Source: Goldman Sachs

Source: Goldman Sachs

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