Bridgewater Bets US$1.5 Billion on Bearish Stock Market

The world‘s largest hedge fund Bridgewater spent US$1.5 billion, or 1% of the assets under the company’s management, on put options that bet on a bearish global stock market in the next 3 months.The option worth of US$100 billion in market value is pegged to SP500 Index and European Stoxx50 index, and Bridgewater will benefit if the 2 indices drop before March next year, while how much the company can gain will depend on the depth of market adjustment and the specific expiry date of the option.

With US stocks again breaking historical record, investors appear to be increasingly divided, and the number of put option pegged to SP500 index yet to be traded has been on the rise. According to Trade Alert, a data provider, SP500 put option that expires in March 2020 is gaining wider appeal.

Although the US Federal Reserve remains neutral about the economic outlook in the mid-term, famous investors such as CEO of Bridgewater Ray Dalio, as well as central banks worldwide are actively getting ready for an economic recession by increasing hedging assets. According to Ray Dalio, the current economic situation in the US much resembles that of 1937. At the early stage of the cycle, debt is used to create more productivity incomes, but what comes next is the recession stage. He also estimates that the economic turning point will come in about 2 years.