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Bears looking to trash junk bonds

Junk bonds have been getting trashed, and one investor is worried about more downside.

optionMONSTER's Depth Charge tracking system detected the purchase of 2,500 November 36 puts on the SPDR Barclays Capital High Yield Bond exchange-traded fund for $1.28. An equal number of November 32 puts were sold at the same time for $0.38. Volume was more than twice open interest in both strikes.

The trade cost $0.90 and will earn a maximum profit of 344 percent if JNK closes at or below $32 on expiration. It hasn't traded that low since April 2009.

The fund is off 1 percent to trade at $36.54 and has lost 9 percent since the beginning of August. High-yield corporates tend to lead the stock market because they're the most sensitive bonds to a slowing economy.

Overall option volume in JNK is twice the normal daily average so far, with puts outnumbering calls by 65 to 1.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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