The iShares High-Yield Corporate Bond Fund is falling with the equity markets, and traders are positioning for more short-term losses.
The HYG exchange-traded fund is down 0.68 percent to $90.42 after hitting resistance around $91 yesterday, a level it has had trouble closing above. Shares have been trending up from support at $83 in the last three months.
The correlation between the HYG and the S&P 500 is usually quite high, currently at 0.65. It is recovering from a period where that correlation had broken down.
The total option volume in the name tops 5,600 contracts, about twice its daily average. More than 4,000 February 90 puts were bought against open interest of 3,545 contracts. The biggest block of 3,467 went for the ask of $0.40.
This put buying could be a short-term bet that the HYG will continue to fall, but it could also be protective hedging on a long position in the shares. Another possibility is that it is a hedge against actual bonds.
As traders become more sophisticated, such trades could be a part of a wide variety of strategies, many that are not just directional bets on the underlying assets. (See our Education section)
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