Jul 24 2009
Big Action in SPY Puts
I received an email overnight asking about some action in the options market.
Another blogger’s post today says that through 12:45 this morning the volume traded on SPY December $95 puts was 122,018 contracts, i.e. a $1.1 billion worth of underlying.
It has been commented before that a large number of institutional players would enter long positions in stocks once the S&P 500 closed above 950.
Could these large purchases of “portfolio insurance” be signalling such a move?
To answer the question, the sale of the options could certainly have been a type of portfolio insurance play. It was commented on CNBC this morning that this kind of sized put buying is something generally done by fund managers who want to protect against a sizeable move down. They wouldn’t buy puts to hedge against a smallish contrary move because of the cost involved. Those calls closed Thursday out at about $5.70, so they aren’t cheap. Futures may be a preferred way to go there in that circumstance, though there are different implications going with that alternative.
It’s worth noting that there’s a lot of open interest at a number of points in the September puts. Specifically, there’s more than 100k at each 5 multiple strike point from 75 to 90, with 135k at the 85 strike. Only the 100 stirke calls have 100k+ in open interest as of yesterday’s close.
Here are some other posts which might interest you:
