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Caution dominates in real estate fund

David Russell (david.russell@optionmonster.com)

The real-estate sector is back to a key resistance level, and one investor is worried about a pullback.

optionMONSTER's Depth Charge tracking program detected the purchase of 3,250 March 60 puts on the iShares Dow Jones U.S. Real Estate Index Fund for $2.75. An equal number of March 50 puts was sold at the same time $0.90. Volume was more than triple open interest at both strikes.

The trade resulted in a cost of $1.85 and will earn a maximum profit of 441 percent if the fund closes at or below $50 on expiration. It's known as a bearish put spread because it leverages a move between two price points, in this case from $60 to $50.

IYR, which owns real-estate investment trusts including Simon Property and American Tower, fell 0.11 percent to $65.37 yesterday. Unlike many sectors, REITs have yet to recover from the 2008 market crash. But they've been strong in the last six months and the fund is now hovering slightly above its peaks from 2011.

Based on that performance, Thursday's trade was probably the work of an investor who's made money in fund and now wants to guard against a pullback. See our Education Section for more hedging strategies.

Puts outnumbered calls in IYR by almost 2 to 1 yesterday, which reflects the negative bias.

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