Are junk bonds going to get trashed?
David Russell | [email protected]
optionMONSTER's Depth Charge tracking system detected the purchase of 3,600 June 87 puts for $0.40 on the iShares iBoxx High-Yield corporate bond fund. An equal number of June 83 puts were sold at the same time for $0.15. Volume was above open interest at both strikes.
Known as a bearish put spread, the trade cost $0.25 and will earn a maximum profit of 1,500 if HYG closes at or below $83 on expiration. It hasn't seen that level since last November. (See our Education section)
The exchange-traded fund rose 0.25 percent to $90.81 on Friday, and has been fluctuating between about $89 and $92 for the last three months. Because of their leverage and sensitivity to the business cycle, junk bonds tend to follow the performance of the equity market.
Overall option volume in HYG was 5 times greater than average in the session, according to the Depth Charge. Puts outnumbered calls by 41 to 1.