An institutional trader is using a complex option spread to bet that the SPDR S&P 500 Fund will fall 18 percent in coming months.
More than 1.9 million SPY contracts changed hands yesterday, with puts outpacing calls by 2 to 1. The fund's enormous volume makes it extremely difficult to identify unusual activity, but optionMONSTER's systems detected a three-way spread yesterday.
A trader bought 8,000 May 130 puts for $3.38 and 16,000 May 100 puts for $0.36 while selling 24,000 May 110 puts for $0.73. Known as a butterfly spread, this trade generates a maximum profit if the SPY is down around $110 by expiration.
But the position will lose if the SPY is above $128.05 or below 101.05 at expiration. The position has a profit-to-risk profile of almost 10 to 1.
The SPY finished yesterday at $135.36, up fractionally on the session. This close matches that of July 7, the exchange-traded fund's highest since May 10. It has closed below its 10-day moving average only once since Dec. 19.
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