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Donald Trump’s election victory has Wall Street bullish about tax cuts and deregulation boosting corporate profits. Even after the stock market’s post-election rally came to a screeching halt on Wednesday when the Federal Reserve signaled a hard line on interest rates, the S&P 500 remains up since Trump’s win. The VIX, popularly known as the Street’s “fear gauge,” also sat well below its long-run average before spiking on Wednesday, and it remains nowhere near the record high it hit in August.
One corner of the derivatives market—known colloquially as “crash protection”—may be telling a more complicated story, however. When investors buy S&P 500 options that only generate profit if stocks plunge, they are likely hedging their losses in the event of a market swoon. The level of the CBOE SKEW Index, a cousin of the VIX, can serve as an indicator that investors are bidding up the relative price of those doomsday options.
The index hit an all-time earlier high this month and remains near that peak. Bill Sterling, global strategist at GW&K Management and former chief international economist at Merrill Lynch, told Fortune that buyers are protecting themselves against unexpected market downturns in case other parts of Trump’s agenda—particularly regarding tariffs and mass deportations of immigrants—wreak havoc on equities.
“To understand this paradox, think of the stock market as a house in a hurricane-prone area,” he wrote in a recent note. “The forecast might show clear skies ahead, but prudent homeowners still pay up for insurance.”
View this interactive chart on Fortune.com
That’s reflected, he said, in two nuanced measurements of investor sentiment. The more famous VIX, formally the CBOE Volatility Index, measures the expected price fluctuations, or volatility, in S&P 500 call and put options over the next 30 days. The calculation uses options that are “at the money,” meaning their strike price—at which an investor has a right to buy or sell the security in question—is identical to their underlying asset's current market value.
The SKEW, meanwhile, uses strikes that are “out of the money,” or well below market price. It’s an attempt to gauge “left-tail risk”—statistician-speak for a very bad day. The higher the level of the index, the more concerned you should be (at least in theory) about an equity sell-off, Nitin Saksena, head of U.S. equity derivatives research at Bank of America, explained to Fortune.
“The VIX is just, ‘How much are things going to move up and down?’” he said. “This is more like, ‘What's the risk of something going wrong?’”