Large downside spread targets SPY
Chris McKhann | firstname.lastname@example.org
The SPY is off 0.2 percent to $132.56 today after opening higher and then slipping to $131.83 before rebounding slightly. The exchange-traded fund has been trending lower from above $141 on the first day of the month and is now on pace for its lowest close since January.
Already 740,000 SPY options have traded this morning, with puts outpacing calls by 2 to 1. Most of that action is in the expiring May contracts, but a July put spread is one of the largest trades of the day.
A trader bought 13,500 July 131 puts for $4.29 against open interest of 28,900 contracts, according to optionMONSTER's Depth Charge. Seconds later, 13,500 July 116 puts for $1.16 against open interest of 1,001.
This is very likely a new opening put spread. The trader would be paying $3.13 for the spread, which would be lost at expiration if the SPY is above $131. The maximum gain of $11.87 would be come if the fund is below $116 at that time.
The SPY hasn't been below those levels since October, so this trade appears to be positioning for the possibility that it gives up all the gains since then. (See our Education section)