Options Trading News

May 14, 2012  Mon 2:14 AM CT

One investor is worried that selling pressure may spread to junk bonds, which have held their ground despite volatility in the stock market.

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.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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