IB Options Brief: SPDR S&P 500 ETF (SPY)
Big SPY Put Spread Established As Market Awaits Jackson Hole Gathering
SPY ñ SPDR S&P 500 ETF
A massive bearish spread initiated in the final hours of the trading session on Monday afternoon suggests one big options market participant is prepared for a roughly 8% pullback in the S&P 500 Index during the next few months. Shares in the SPY, an exchange-traded fund that tracks the performance of the S&P 500 Index, slipped to an intraday low of $140.97 earlier today after consumer confidence fell the most in 10 months, but have since recovered to stand 0.10% lower on the session at $141.40 as of 11:30 a.m. ET.
The large, approximately, 100,000-lot Nov. $130/$140 put spread purchased Monday for around $2.47 per contract makes money if the price of the underlying slips 2.7% to breach the average breakeven point on the downside at $137.53. Maximum potential profits of $7.53 per contract are available on the position in the event SPY shares drop 8% to settle at or below $130.00 at November expiration.
The strategy could be looking ahead to the meeting of central bankers in Jackson Hole, Wyoming; betting the markets may be disappointed in what Bernanke and others have to say as the U.S. settles in for the long weekend. Additionally, with the S&P 500 Index having traded up to its highest in four years on an intraday basis last week, the spread may simply be locking in recent gains to protect against any bumps in the road, central bank-related or otherwise, that could trip up the market in the next few months.
Note: The material presented in this commentary is provided forinformational purposes only and is based upon information that isconsidered to be reliable. However, neither Interactive Brokers LLC norits affiliates warrant its completeness, accuracy or adequacy and itshould not be relied upon as such. Neither IB nor its affiliates areresponsible for any errors or omissions or for results obtained from theuse of this information. Past performance is not necessarily indicativeof future results.
This material is not intended as an offer or solicitation for thepurchase or sale of any security or other financial instrument.Securities or other financial instruments mentioned in this material arenot suitable for all investors. Any opinions expressed herein are givenin good faith, are subject to change without notice, and are onlycorrect as of the stated date of their issue. The information containedherein does not constitute advice on the tax consequences of making anyparticular investment decision. This material does not take into accountyour particular investment objectives, financial situations or needsand is not intended as a recommendation to you of any particularsecurities, financial instruments or strategies. Before investing, youshould consider whether it is suitable for your particular circumstancesand, as necessary, seek professional advice.
View Caitlin Duffy's post archive >