According to Trade Alert data cited by Reuters, an anonymous trader made waves in the options market on Monday by selling 19,000 put options on the S&P 500 SPX, +1.01% , which obligates him or her to buy the market benchmark if it drops 22% by December 18, 2020.
Sounds like a pretty big pullback, right? Keep in mind that the S&P closed 2018 almost 20% off its record high in September. Things change fast these days.
So, bottom line, should stocks emerge from all this government upheaval, earnings gloom and heightened volatility mostly unscathed, the wiley trader pockets $175 million in premiums. But if the wheels come off and the market turns ugly, it could deliver a loss of more than half a billion dollars.
As one investor told Reuters, however, there’s a high likelihood this trade was made as a hedge against another position, and not a straight-up bullish bet.
Reuters compared the wager to one Warren Buffett placed more than a decade ago, when Berkshire Hathaway BRK.A, +0.95% sold billions in options between 2004 and 2008, betting markets would rise over the next 15 to 20 years.
Berkshire has earned $4 billion in premiums on those options, so far, and could make even more, with a final tranche settling in 2026.
The SPDR S&P 500 ETF Trust (SPY) was trading at $259.88 per share on Tuesday afternoon, up $2.48 (+0.96%). Year-to-date, SPY has declined -2.23%.
This article is brought to you courtesy of MarketWatch.