One big investor apparently thinks that the big selloff in junk bonds is over.
optionMONSTER's Heat Seeker monitoring system detected the purchase of more than 9,100 December 93 calls in the iShares iBoxx High-Yield Corporate Bond exchange-traded fund on Wednesday. They priced for $0.90 and the volume dwarfed previous open interest of 34 contracts at the strike, indicating that new positions were initiated.
These calls lock in the price where investors can buy HYG, which holds a wide variety of low-rated company debt. Worries that the Federal Reserve will halt bond purchases caused interest rates to shoot higher in recent months, causing the fund to drop more than 7 percent between early May and mid-June.
HYG rose 0.23 percent to $90.82 on Wednesday. It's now back to the same area where it peaked in early 2012, which could make some chart watchers believe that it's at potential support and ready to bounce.
If it pushes higher, those December 93s will cheaply provide the investor with upside exposure. They'll more than double from the fund climbing less than 5 percent, which illustrates the kind of leverage that can be achieved with options. (See our Education section)
Calls outnumbered puts by more than 4 to 1 in the session, according to the Heat Seeker
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