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Nope. The hefty volume in those 400's puts was not closing of positions since the open interest was dwarfed by this volume. It was either new contracts or round-trip trading, and the truth will not be know until tomorrow morning, when the change in oi can be seen. Now the real questions are, to the extent that there is much greater oi in these puts after today's close, who wrote and who bought? If there were mm's involved in these trades then they had to balance their book. If mm's were net sellers of puts then they had to sell shares to hedge and if net buyers of puts they had to buy shares to hedge. The volume of shares required to be sold or bought if the mm took one side of these massive trades is way too great for this to have been what occurred. Therefore I surmise that these were delta-balanced put spreads where the mm did not have to hedge a significant risk in order to book the trades. Now why would someone create a put spread so far into the money, where the delta is close to 1 on both sides? I don't get it.
<<<Therefore I surmise that these were delta-balanced put spreads where the mm did not have to hedge a significant risk in order to book the trades.>>>
You are probably right, since most of the contracts seem to have been traded in the last hour of trading (at least the March 420s & 430s that I checked).
<<<Now why would someone create a put spread so far into the money, where the delta is close to 1 on both sides? I don't get it.>>>
Maybe someone's counting on the stock rising back above 430 before expiration? If they sold the 430s and bought the 420s and GOOG did recover, the options will expire worthless and they pocket a cool grand per contract, and with the ~30,000 contracts just traded...that's a whopping $30 million!!!
Ya think somone knows something, or is this just a relatively low-risk options gamble???
This is classic fund action. One fund will sell massive amounts of stock/options concurrently to another fund to offset losses/gains.
Because theres 1 buyer per 1 seller the end result ends up being nil. Just another example of funds cooking the books.
sorry longs . . . lube time again.
Right. The only possible logical explanation that I could come up with, beyond the pre-arranged deal thesis of the other poster, was an expectation of a radical runup. I didn't mention that because it seems rather absurd at this juncture. It does have the lure of zero downside risk (beyond commissions).
(((Now why would someone create a put spread so far into the money, where the delta is close to 1 on both sides? I don't get it.)))
They may know the stock will tank. They could know about a huge sell block that will be on deck tomorrow.
Mebbe someone who works at Fidelity has started trading options lol
You missed the point. There is no profit and no loss in a deep in the money put spread which stays deep or gets deeper. And I reject the premise that the mm took one side and hedge funds took the other, because the mm would without a doubt have hedged his book. That would have required about 10 million shares to trade opposite the opening of those contracts. That did not happen, so we can be almost absolutely certain that these were spreads, and that makes no sense at all.
I thought that open interest is updated immediately after a position is opened or closed. Is that not true? You dont have to wait till the next day. I guess we'll find the answer to this question tomorrow :)
The initiator was a buyer. You put down $70 or $80, buy the options and get the exact same payout profile if you had shorted the stock outright. They are 100 delta options; there is no time premium to decay. The difference is leverage. Putting down $70 to short the stock via puts gives you a much higher return than on the margin required for outright shorting. Therefore, for the same amount of capital, a much larger short position can be created with options. The buyer may also have restrictions on outright short selling.
Who sold these options? Easy. The market makers (Citadel, et. al.) They sold the options, and then sold stock against them 1:1. With GOOG at 350, they would be thrilled to sell the 420 Puts at 70.25; that�s 25 cents of profit for them (give that GOOG does not go above 420 by OE).