One investor is using options to position for a rally in junk
optionMONSTER's tracking systems detected a surge of volume in the
SPDR Barclays High-Yield Fund, which holds a diversified mix of
debt securities rated below investment grade. Almost all the
activity occurred in the October and December expirations, with
4,000 contracts each trading in six different options.
The December 40 calls were purchased for $0.35, the December 39
puts were sold for $0.60 and the December 36 puts were bought for
$0.20. The October 40 calls were sold for $0.10, while the 39 puts
and 36 puts changed hands for $0.15 and $0.05. Volume was below
open interest in October but not December, which suggests that a
single trade was closed and rolled forward in time.
The trader is now essentially short the 39/36 put spread and long
the 40 calls. Selling this
earns income to finance the
upside call purchase
. He or she stands to earn quick profits if the JNK rallies but
also faces the risk of a $3 loss should the fund drop to $36. (See
The JNK fell 0.16 percent to $39.85 yesterday and has mostly
fluctuated between $39 and $42 all year. That could make some
investors confident that it will hold the bottom of that range and
help explain the put selling at that level.
Total option volume was 11 times greater than average in the
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.
Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.