Junk bonds have been weak, and one investor apparently thinks that they may get trashed.
optionMONSTER's Depth Charge tracking program detected the purchase of 9,000 March 92 puts in the iShares iBoxx High-Yield Corporate Bond Fund for $0.74. An equal number of March puts was sold at the same time for $0.19.
The trade cost $0.55 and reflects a belief that speculative-grade corporate debt will fall in the next month. Those securities tend to follow stock prices, so the position reflects nervousness toward the broader market.
The position will expand to $3 if the fund falls to $89 by expiration, translating into a profit of 445 percent. (See our Education section for more on the strategy, which is known as a bearish put spread .)
The HYG fell 0.19 percent to $92.98. It touched a 4-1/2 year high of $94.97 on Jan. 25 but has been dropping almost every day since then.
Volume was below open interest in the 92 puts, so the investor may have closed an existing short position at that strike and rolled it down to 89. That would also reflect concerns about the fund.
Total option volume was almost twice the daily average in the HYG yesterday, according to the Depth Charge. Puts outnumbered calls by more than 7 to 1.
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