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Trader sees S&P 500 staying in range

Chris McKhann (chris.mckhann@optionmonster.com)

Volatility for the S&P 500 has quieted down in the last four days, and a large option trade this morning is looking for that to continue for the next week.

The SPDR S&P 500 Fund (SPY) is down fractionally this morning, trading at $141.41. The exchange-traded fund dropped from above $146 at the end of last week into the beginning of this week. Since then it has been unable to close above $142 despite attempting to do so each day.

optionMONSTER's systems show that a trader sold 10,000 Weekly 146 calls and the same number of Weekly 136 puts. The calls traded for $0.05 and the puts for $0.14 even though the fund is closer to the call strike (clearly displaying the "skew" of the options).

The sale of both contracts indicates the trader believes that the SPY will remain between the two strike prices through the end of next week and that volatility will settle down. (See our Education section)

This trade is very likely leveraged, given the small premium. That would work well for the trader if the thesis is correct but could create substantial problems if shares fall sharply.

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