Huge Bet Placed To Profit From A Drop In The S&P 500 ETF (SPY)

“The S&P 500 has been like the Energizer Bunny–it just keeps going and going–but an unusual play in its SPY exchange-traded fund is structured to profit from a sharp drop. The last two days have seen the SPDR S&P 500 ETF (NYSE:SPY) rebound from early-session pullbacks. The fund remains near its $132.64 high from Tuesday, its highest price since June 2008, but today’s option trade is looking for a retreat to the $120 area,” Chris McKhann Reports From Option Monster.

McKhann goes on to say, “The SPY is trading at $132.06, down 0.16 percent on the day. It dipped to $131.30 at the open but has been climbing since, similar to yesterday’s trading. The SPY contracts are the most widely traded of any equity-based options, averaging more than 1 million a day. It is difficult to identify any unusual trades within this enormous volume, but we do see a large put trade hitting our Depth Charge system today. A trader bought 20,000 May 130 puts for $3.81 and at the same time sold 40,000 of the May 120 puts for $1.47. This was unusual because the volume at both strikes was more than open interest and almost all of the trading in the SPY is in the front-month expirations.”

“This put ratio spread cost $0.87, which will be lost if the position is held until expiration and the SPY remains above $130. The position takes a maximum profit of about $18 million with the SPY at $120. Below that, the trader is effectively long SPY shares but will still profit if shares are above roughly $111. This could be a hedge on an existing long position, with the trader using a put ratio to greatly reduce costs. It wold work well with the SPY down as much as 9 percent to 10 percent, but the trader if essentially long more shares at that point,” McKhann Writes.

Visit our category on the SPDR S&P 500 ETF (SPY) for more insight: HERE

Here is a snapshot of the options activity:

Put Options Expire at close Friday, May 20, 2011
Strike Symbol Last Chg Bid Ask Vol Open Int
73.00 SPY110521P00073000 0.06 0.00 0.01 0.06 209 209
80.00 SPY110521P00080000 0.08 0.00 0.05 0.07 1 1
90.00 SPY110521P00090000 0.15 0.00 0.13 0.17 2 1,948
91.00 SPY110521P00091000 0.29 0.00 0.14 0.18 500 964
92.00 SPY110521P00092000 0.23 0.00 0.15 0.19 495 1,344
93.00 SPY110521P00093000 0.22 0.00 0.17 0.20 35 449
95.00 SPY110521P00095000 0.21 Up 0.01 0.20 0.22 40 1,116
96.00 SPY110521P00096000 0.32 0.00 0.21 0.24 284 382
97.00 SPY110521P00097000 0.33 0.00 0.23 0.26 200 300
98.00 SPY110521P00098000 0.25 0.00 0.25 0.28 10 100
99.00 SPY110521P00099000 0.36 0.00 0.27 0.29 2 2
100.00 SPY110521P00100000 0.31 0.00 0.29 0.31 3 634
101.00 SPY110521P00101000 0.48 0.00 0.31 0.33 389 389
103.00 SPY110521P00103000 0.49 0.00 0.35 0.38 15 15
104.00 SPY110521P00104000 0.51 0.00 0.38 0.41 26 33
105.00 SPY110521P00105000 0.38 0.00 0.41 0.44 3 162
106.00 SPY110521P00106000 0.61 0.00 0.43 0.47 7 142
107.00 SPY110521P00107000 0.57 0.00 0.47 0.51 2 259
108.00 SPY110521P00108000 0.51 Down 0.10 0.50 0.54 6 259
109.00 SPY110521P00109000 0.54 0.00 0.54 0.59 100 175
110.00 SPY110521P00110000 0.60 0.00 0.59 0.63 1,530 2,865
111.00 SPY110521P00111000 0.89 0.00 0.64 0.68 1 319
112.00 SPY110521P00112000 0.69 Down 0.03 0.69 0.74 1,000 214
113.00 SPY110521P00113000 0.75 0.00 0.75 0.80 20 356
114.00 SPY110521P00114000 0.87 Up 0.07 0.82 0.86 123 779
115.00 SPY110521P00115000 0.97 Up 0.08 0.89 0.93 1 1,258
116.00 SPY110521P00116000 1.04 Up 0.03 0.97 1.01 54 7,251
117.00 SPY110521P00117000 1.08 Down 0.05 1.06 1.10 1,114 966
118.00 SPY110521P00118000 1.18 Up 0.03 1.15 1.19 30 332
119.00 SPY110521P00119000 1.28 Down 0.02 1.25 1.29 5 1,264
120.00 SPY110521P00120000 1.37 Down 0.09 1.36 1.39 40,454 11,681
121.00 SPY110521P00121000 1.56 Up 0.01 1.49 1.52 4 8,019
122.00 SPY110521P00122000 1.65 Down 0.01 1.63 1.66 1,010 11,345
123.00 SPY110521P00123000 2.02 Up 0.11 1.79 1.82 20 8,669
124.00 SPY110521P00124000 2.00 Up 0.01 1.97 2.00 25 1,253
125.00 SPY110521P00125000 2.25 Up 0.06 2.17 2.20 26 16,192
126.00 SPY110521P00126000 2.41 Down 0.07 2.39 2.42 7 7,254
127.00 SPY110521P00127000 2.76 Up 0.19 2.63 2.69 29 695
128.00 SPY110521P00128000 2.91 Down 0.08 2.90 2.94 321 12,755
129.00 SPY110521P00129000 3.24 Down 0.16 3.20 3.26 115 1,261
130.00 SPY110521P00130000 3.57 Up 0.12 3.54 3.57 20,330 14,987
131.00 SPY110521P00131000 4.02 Down 0.15 3.91 3.94 711 3,284
132.00 SPY110521P00132000 4.33 Up 0.04 4.32 4.35 660 1,575
133.00 SPY110521P00133000 4.88 Up 0.02 4.76 4.81 272 462
134.00 SPY110521P00134000 5.33 Up 0.24 5.25 5.30 49 181
135.00 SPY110521P00135000 5.94 0.00 5.77 5.83 52 253
136.00 SPY110521P00136000 6.40 0.00 6.36 6.43 2 150
137.00 SPY110521P00137000 7.48 Up 0.31 6.98 7.06 20 400
138.00 SPY110521P00138000 7.90 0.00 7.66 7.74 5 5
139.00 SPY110521P00139000 8.35 Down 0.07 8.37 8.47 1 203
140.00 SPY110521P00140000 9.04 0.00 9.14 9.24 2 35
150.00 SPY110521P00150000 19.93 0.00 18.25 18.48 1 1
151.00 SPY110521P00151000 19.38 0.00 19.23 19.45 10 10
152.00 SPY110521P00152000 20.37 0.00 20.22 20.44 10 10
155.00 SPY110521P00155000 23.37 0.00 23.22 23.42 10 10
156.00 SPY110521P00156000 24.37 0.00 24.21 24.42 10 10
157.00 SPY110521P00157000 25.36 0.00 25.21 25.42 10 10
158.00 SPY110521P00158000 26.36 0.00 26.20 26.42 10 10
170.00 SPY110521P00170000 38.88 0.00 38.21 38.42 20 20

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