Massive hedge on retail fund
Chris McKhann | [email protected]
Retailers have started to work, and one trader is apparently hedging a large bet on the sector.
optionMONSTER's Depth Chart monitoring program detected a complex put spread in the SPDR Retail Fund minutes before the closing bell Friday: A block of 10,000 August 85 puts were sold for $0.56 and 20,000 of the 82 puts were bought for $0.09. The volume at both of those strikes was less than open interest, which suggests they were closing trades.
Seconds later, 10,000 of the September 85s were bought for $1.91 and 20,000 of the September 80 puts were sold for $0.58. At those strikes the volume was more than open interest, so that was a new opening put ratio spread.
He or she rolled a put ratio spread, which involves selling twice as many contracts as they number bought. It lowers the cost basis, but also leaves them on the hook to buy 1 million shares for $80 if they close below that level. That suggests they see little downside in the fund and are probably seeking protection on a long position. See our Education section for other hedging techniques.
XRT rose 1.55 percent to $85.24 on Friday. It's up 2 percent in the last week, while the S&P 500 has gained less than half a percent over the time frame. The fund traded as low as $83 last week, but is down from above $88 at the start of July.
Total option volume was 11 times greater than average in the session, with puts outnumbering calls by 15 to 1.