While the Cboe Volatility Index may have peaked, there could still be a second-leg lower for stocks, according to a BNP Paribas analysis of 27 market crashes over the last 100 years. Strategists at the French bank in New York are proposing put spreads and other derivatives strategies for different market scenarios, depending on investors’ risk appetite and outlook, in a deep-dive report published last week. The velocity of the recent bear market rally may have caught some a little offsides, according to Greg Boutle, head of U.S. equity derivatives strategy, who added that investors’ views range broadly at the moment, from those who think U.S. markets are heading into a “japanization” environment to those who, given recent Federal Reserve and administration action, expect a return to stock-market highs. But in the wake of the rally, positioning has shaken out a little and now investors are considering whether it makes sense to hedge, he added. “I think that generally something that people are in agreement with is that owning optionality, gamma in particular, at the moment makes sense,” he said, noting the levels of implied volatility relative to realized. “It still just basically screens as quite cheap.” It’s still hard to make directional calls, he noted, but owning gamma at the front end makes sense. BNP Paribas’ report suggested put spreads with May and June maturities. “Our basic view is that the short-dated vol, so out to June, is low enough relative to what it is realizing that owning puts outright is attractive,” he said. “Owning a put spread instead of instead of a put makes sense quite simply because the skew is still steep… So you can cheapen the puts quite well by trading put spreads.” For investors seeking a higher maximum payout versus the premium, put flies might make sense, while down-and-out puts can cheapen the premium but limit the amount of protection.