Options Trading News

One investor is using options to protect against junk bonds getting trashed.

Our Depth Charge monitoring system detected the purchase of 5,000 March 90 puts on the iShares iBoxx High-Yield Corporate Bond exchange-traded fund for $2.55. An equal number of March 85 puts were sold at the same time for $1.05. Volume was more than 30 times open interest at both strikes, indicating that new positions were initiated in each.

The option trade cost $1.50 and will earn a maximum profit of 233 percent if the fund closes at or below $85 on expiration. It's known as a bearish put spread because it leverages a move between two price points.

The HYG is off 0.29 percent to $92.08 in midday trading. Junk bonds tend to follow sentiment in the stock market, so the fund has been melting higher along with the S&P 500.

Today's bearish trade is probably the work of an investor who owns HYG but wants insurance against a pullback. (See our Education section)

Overall option volume is quadruple the daily average so far in the session, with puts outnumbering calls by 63 to 1.