Markets

Downside position taken on junk bonds

Junk bonds have risen along with stocks, and now one investor is looking for a drop.

optionMONSTER's Depth Charge monitoring system detected the purchase of 2,000 January 88 puts on the iShares iBoxx High Yield Corporate bond exchange-traded fund for $0.35. A block of 2,500 January 90 calls were sold at the same time for $0.20. Volume exceeded open interest in both strikes.

The trade cost $20,000 and will make money if HYG drops below $88. The investor is also obligated to sell the fund if it rallies above $90, so he or she probably owns it and is looking to hedge their position . (See our Education section)

HYG is down 0.51 percent $89.11 in morning trading and has mostly followed the trajectory of the S&P 500. Junk bonds tend to be highly correlated with equities because they're the most sensitive to changes in investor sentiment and economic conditions.

Overall option volume in HYG is more than quadruple the daily average so far today, according to the Depth Charge.

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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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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