Yesterday's market rally sent investors scrambling for exposure to junk bonds, which had fallen all the way back to levels last seen in November.
optionMONSTER's Heat Seeker monitoring system detected the purchase of about 8,600 July 94 calls in the iShares iBoxx High-Yield Corporate Bond Fund, mostly for $0.35 late in the morning. About half an hour later, some 8,000 September 94 calls were bought for $0.65. Volume was more than triple the open interest at each strikes, indicating that new money was being put to work.
Long calls lock in the price where the fund can be purchased, so a rally will drive up their value. But if the stock remains below the $94 strike price of these contracts, the options could expire worthless. (See our Education section)
The HYG rose 1.15 percent to $92.70 yesterday. Because they're issued by companies with more debt, junk bonds are particularly sensitive to conditions in the stock market and broader economy, as well as interest rates. Those factors hammered the fund in the last month as interest rates rose while the S&P 500 fell, but the opposite occurred yesterday.
Total option volume in the HYG was about 50 percent greater than average yesterday, with calls outnumbering puts by more than 2 to 1.
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