Enormous hedging in financial fund

optionMONSTER

The SPDR Financial Fund is seeing enormous put trading today as shares slip from Wednesday's highs.

More than 847,000 XLF options have alrady changed hands today, about 9 times its its daily average--the largest amount I remember seeing in the last four years. Calls make up fewer than 14,000 of that action.

optionMONSTER systems show that a trader bought 191,000 December 20 puts for $0.50, above the listed ask price at the time. At the same time, this trader sold 191,000 December 18 puts were sold for the bid price of $0.12. The result is a new veritcal spread , which cost just $0.38 to open.

In the next minute, large prints of just under 100,000 traded in the October 20, 19, 18, and 17 puts, all with volumes below previous open interest. It appears that the trader is selling put spreads in the October expiration to purchase those in December.

In addition to buying another month for the position to work, the trader also gets a better overall delta and therefore better exposure to any move lower in the XLF. The positioning is likely the work of large institutions hedging hedging their portfolios. (See our Education section)

The exchange-traded fund is down 0.37 percent to $20.45 in afternoon trading, adding to yesterday's losses. On Wednesday the XLF was very near the closing high of $20.87 set on July 22 as it rallied with the rest of the market after the Federal Reserve's announcement that it was not changing monetary policy. Shares were down at support at $19.4 at the end of August.


More From optionMONSTER

Rates

View Comments (0)