Many options traders on Wednesday appeared to be taking a protective stance and employed bearish strategies in several exchange-traded funds on concerns the stock market’s recent gains are overdone.
The bearish activity comes on a day of choppy trade in the stock market. The Dow Jones industrial average .DJI and the Standard & Poor’s 500 index .SPX finished the session lower after disappointing results at Morgan Stanley reignited worries about the banking sector.
The market has been sensitive to the outlook for banks before the release of the federal government’s “stress test,” expected as early as Friday.
Option trading was heavy in the Direxion 3X Financial Bear Fund FAZ.P, or FAZ, a leveraged exchange-traded fund designed to move inversely to the financial sector. Its shares hit a low of $8.58, but bounced back as financials lagged late in the session. It closed at $9.90, up 7.73 percent.
The ETF’s option volume rose to double the normal levels, with 92,000 calls and 17,000 puts traded, according to option analytics firm Trade Alert.