Options Trading News

November 22, 2013  Fri 11:17 AM CT

Junk bonds have been struggling as interest rates rise, and one investor is afraid that they might get trashed.

optionMONSTER's Depth Charge monitoring program detected the purchase of more than 12,600 January 37.74 puts in the SPDR Barclays High-Yield Bond Fund for $0.15. Volume was more than 14 times open interest at the strike, indicating that new positions were initiated.

Puts lock in the price where JNK can be sold, letting investors hedge long positions against a drop. They can also be used to speculate on a selloff, offering significant leverage without the risk of short selling. (See our Education section)

The JNK is down fractionally to $40.51 in midday trading and has mostly fluctuated between $39 and $40 since June. Nonetheless the exchange-traded fund has fared better than government and corporate securities because junk bonds have higher yields and are more leveraged to an improving economy.

Total option volume is 11 times greater than average in the JNK so far today, according to the Depth Charge. Puts outnumber calls by 115 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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