Goldman's Best Hedge Against Bullish Sentiment Extremes

Goldman Sachs reports that its Risk Appetite Indicator has hit a multi-year high at the 99th percentile. They recommend using put spread collars to hedge against potential equity market corrections, particularly in US Tech and China.

Key Takeaways

• 1.Goldman's Risk Appetite Indicator (RAI) has reached 1.1, the 99th percentile since 1991, signaling extreme bullish sentiment.
• 2.Extreme RAI levels typically lead to smaller corrections rather than major sell-offs, making put spread collars an attractive hedging strategy.
• 3.Bullish call option positioning is most extreme in US TMT, US Financials, and China equities.

Table of Contents

• Market Sentiment and Investors' Positioning
• Goldman's Risk Appetite Indicator (RAI)
• Bullish Positioning on Equity Calls
• Sector and Regional Specific Positioning
• Put Spread Collar Opportunities
• Hedging the Largest 3m Rallies

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