Stocks fell again today, but traders apparently think that the
declines will be orderly.
optionMONSTER's tracking systems detected the sale of more than 4.3
million options across the eight exchanges in yesterday's session.
That's 29 percent more than average, even though overall options
volume was 22 percent below normal levels.
Put selling occurred in such names as Campbell Soup, Cintas,
Safeway, and Iron Mountain as investors looked to earn income by
insuring the stocks against significant drops.
"A lot of people don't think it's going to get more volatile, so
they are selling," said Group One's Jamie Tyrrell, designated
primary market maker for VIX options at the Chicago Board Options
Exchange. The VIX, which measures the cost of insuring the S&P
500, is a broad measure of the cost of options across the market.
In Iron Mountain, investors sold 12,620 July 20 puts for $0.15
against open interest of just 111 contracts. The
document-management and shredding company fell 1.80 percent to
$22.97. IRM would have to fall another 13 percent by expiration for
the investor to lose any money.
Traders sold 5,700 July 20 puts on Safeway for $0.40 against no
open interest, pushing total options volume in the supermarket
stock to about 6 times greater than average. SWY fell 0.61 percent
Given that out-of-the money contracts derive all of their value
from their time until expiration and the stock's implied
volatility, selling options reflects a belief that volatility is
The S&P 500 fell 1.35 percent to 1,050.47 in the session and
has been trending lower for the last six weeks. However, the VIX
closed the session at 36.57 percent, which means options are
already pricing in a move of about 2.3 percent.
"We not seeing premims pushed a ton higher this time around,"
Tyrrell added. "It seems as if the market is saying this type of
selloff is possible, but a 5 or 10 percent selloff they don't see
(Chart courtesy of tradeMONSTER)
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