It hasn't been this cheap since 2008 to protect against a stock market sell-off, Bank of America says

• The cost of protecting against a stock-market sell-off hasn't been this low since 2008, per Bank of America. 
• High interest rates and low equity volatility are driving down the price of S&P 500 put options.
• "Since our data began in 2008, it has never cost less to protect against an S&P drawdown in the next 12 months," the bank said. 

Investors looking to hedge against US stock-market weakness are in for a bargain.

Put options on the S&P 500 — which are used to hedge losses in the index over the coming 12 months — haven't been this cheap since 2008, according to Bank of America.

That's because a combination of low stock-market volatility and high interest rates has slashed the cost of put options, which are derivative contracts that grant the right to sell an asset on a future date at a predetermined price.

Given the high equity-market valuations and the lingering threat of a recession, it's "sensible" for investors to buy the contracts at the current low prices to guard against the risk of a selloff, BofA strategists led by Benjamin Bowler wrote in a research note.

"Since our data began in 2008, it has never cost less to protect against an S&P drawdown in the next 12 months," the strategists BofA strategists said.

"The all-time low cost of protection is striking in an environment of 3-4% inflation, a real threat of recession, extreme macro volatility, and high S&P valuations despite high interest rates and a shaky Fed put," they added. "We find it sensible to buy longer-dated S&P put and put spreads for a lower price than even in 2017, a year that broke several historical records for equity market complacency."

Fluctuations in US equities have narrowed significantly in recent months with the onset of a new bull market, with the CBOE Volatility Index recently falling to its lowest level in 3 years.

Additionally, high interest rates tend to reduce the cost of put options. US borrowing costs have risen sharply over the past five quarters, with the Federal Reserve raising benchmark rates by 500 basis points to quell inflation. Traders are bracing for another 25-basis-point hike this week. 

A number of leading market thinkers have warned that US stocks could plunge due to high interest rates, stretched equity valuations, and recession risks. That's despite the S&P 500 rallying almost 19% so far this year, taking its gains since the end of 2008 – the year of the global financial crisis – to more than 400%.