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What's behind puts in dividend fund

Chris McKhann (chris.mckhann@optionmonster.com)

An investor bought a large stake in the Vanguard Dividend Appreciation Fund and is apparently using options to protect it.

optionMONSTER systems show that more 5,056 VIG options traded yesterday, compared to a daily average of just 43 and total open interest of 1,599 contracts. Virtually all of the action was in the June 67 puts, where 5,000 were bought for the ask price of $0.30 on a wide bid/ask spread.

Just minutes before those contracts traded, 65,000 VIG shares were purchased in large blocks for up to $69.35. If the stock and options are connected, which seems likely, then the puts were bought as protection on those shares. This is essentially the same as buying calls in the name, from a profit-and-loss perspective. (See our Education section)

VIG was down fractionally to $69.32 at the end of the day but hit an all-time intraday high of $69.57 earlier in the session, following Friday's record closing high of $69.35. Shares of the exchange-traded fund, which tracks stocks with histories of raising dividends, have been trending higher since bottoming at $57 in November. 

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