Someone wants to protect a long position in bank loans using
Our Depth Charge monitoring program detected the purchase of 6,000
January 23 puts on the PowerShares Senior Loan exchange-traded
fund, which holds debt issued by a wide range of junk-rated
borrowers. The loans are higher in the capital structure than the
high-yield bonds held by other portfolios such as iShares iBoxx
High-Yield Corporate Bond fund (HYG).
That gives them less risk and therefore less return. BKLN yields
just 4.3 percent, compared with HYG's 6.2 percent payout.
Today's puts in BKLN cost $0.20, equivalent to a little more than
two months of dividend payments. The contracts will serve as
insurance against a major drop
. (See our
BKLN is up fractionally to $24.89 in midday trading. It's down more
than 1 percent in the last month as investors dumped risk assets
including stocks and junk bonds. The shares are now back to their
lowest levels since December.
Total option volume is 26 times greater than average so far today,
with that big put trade accounting for all the activity.