U.S. real estate investment tracker iShares U.S. Real Estate ETF (IYR) is set for its highest close since early 2007, last seen up 0.3% at $89.55. IYR has been climbing the charts this year, so far up nearly 20%, and today rallied as high as $89.64 -- tying its 12-year peak touched on June 7. Aiding the exchange-traded fund's (ETF) rally has been the 80-day moving average, which has contained multiple pullbacks since April, and growing expectations for a Fed rate cut could have investors hoping that lower mortgage rates will boost the housing market. Nevertheless, it looks like one options trader is either betting on or hedging against a pullback for the fund.
In the options pits, traders have been busy today. Currently, more than 8,000 calls and 15,000 puts have changed hands -- about 1.5 times the expected intraday pace. There's notable activity at the weekly 6/28 84- and 87-strike puts, where a bear put spread looks to have been established.
The trader looks to have bought to open 4,000 87-strike puts for $0.47 each, and simultaneously sold to open an equal amount of 84-strike put for $0.12 each. This spread was established for a net debit of $0.35 per pair of options ($0.47 - $0.12), or $140,000 total (net debit x 100 shares per contract x 4,000 spreads).
Digging deeper, the spread will make money if IYR moves below $86.65 (bought put strike minus net debit) before the close on Friday, June 28, when the weekly options expire. However, while the sale of the lower-strike puts reduced the cost of the bought puts, they also limit the profit potential to $2.65 per spread (difference between strikes minus net debit), no matter how far IYR should sink below $84. Meanwhile, the investor will sacrifice the entire net debit if IYR settles above $87 when the options expire.
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