OptionsHouse

Options Trading News

April 17, 2013  Wed 9:47 AM CT

SPX: SEE CHART GET CHAIN FIND STRATEGIES
The S&P 500 is pushing back toward Monday's lows, but one trader is betting against a crash in the near term.

optionMONSTER systems detected the sale of 2,996 SPX Weekly 1275 puts that expire next week, going for the bid price of $0.05. These options, which are based on the index and have no single underlying, are cash-settled contracts that can be exercised only at expiration, though they can be traded any time before that.

This put-selling strategy is often known as "nickel selling," as in "picking up nickels in front of a steamroller." It has a high chance of profit, as the delta suggests a less than 1 percent probability that the SPX will be below 1275 at the end of next week, but the risks are significant. For example, if the SPX was down to 1274, the trader would lose $0.95--and obviously that would increase with any losses from there.

The VIX, which is based on the SPX options, is up to 16.18. The implied volatility of those out-of-the-money puts is 41 percent, so this is a volatility-selling strategy. The other risk in the strategy is that it is obviously highly leveraged to be able to get any profit out of it.

The SPX is down 22.76 points, or 1.45 percent, to 1551.81. The recent action in the index has driven its 10-day historical volatility up to 17.9 percent.
Share this article with your friends


Related Stories

SPX

Stocks continue to fall before data

July 27, 2015

S&P 500 futures are off 0.6 percent, while most of Europe is down 1-2 percent. Shanghai led the declines overnight in Asia with an 8.5 percent drop.

SPX

Busy agenda keeps focus on rates

July 27, 2015

Durable-goods orders get the ball rolling at 8:30 a.m. ET. Forecasters anticipate 3 percent growth overall in June, up from a 2.2 percent drop in the previous month.

SPX

Futures inching higher on earnings

July 24, 2015

S&P 500 futures is up about 0.1 percent, while the Nasdaq 100 is up 0.2 percent. Europe is little-changed and Shanghai led Asia lower overnight, spurred by poor Chinese data.

SPX

Home sales, overseas data on tap

July 24, 2015

The main U.S. item is new-home sales report for June. Economists expect a 550,000 annualized reading, up from 546,000 in the previous month.

SPX

Futures adrift in sea of earnings

July 23, 2015

S&P 500 futures are up less than 0.1 percent, while European indexes are mostly flat. Shanghai led Asia overnight with a 2.4 percent after the government expressed support for equities.

OptionsHouse

Premium Services

Archived Webinar

Education & Strategy

Options Academy: Put/Call Parity

Once you have learned and understood the concepts of Synthetic Positions and Reversal/Conversion, you have mastered the idea that options are truly mathematically based...

View more education articles »