BofA Touts ‘Cheap Lottery Tickets’ for Debt-Ceiling Tail Hedge

Investor indifference to the threat of a prolonged debt-ceiling impasse has left a handful of tail-risk strategies almost too cheap to pass up.

That’s according to Bank of America Corp. analysts, whose math shows that purchasing hedges now with options on the S&P 500 and gold would stand to yield profits more than 30 times the upfront premium should negotiations break down and markets react like they did in 2011.

Derivatives tied to those assets point to a very low probability of a crisis happening — even one that’s half as bad as 12 years ago. Based on BofA’s calculation, ...