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Someone Is Betting On A Crash?

 February 08, 2013 07:22 PM


That, if you're unaware of what you're looking at, is the option chain for the "XLF", the financial sector "spyder" ETF, for April expiry.

The April $16 and $17 PUTs have enormous open interest.  The $16s have been there for quite a while.

The $17s, however, have not.

At first blush you'd look at this and think it was a spread, which is not all that unusual.  But then you look more-closely and on 1/24 you find that 50,000 $17 PUTs were opened against 44,000 open interest (approximately) and that was all the material movement through the end of the month.

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Then, on the first of February, an obvious spread appears to have traded for 25,000 contracts.

And then the big daddy appeared -- a monster set of trades on the 5th -- and both "stuck" the next day.

That is, these were not daytrades.  They're positional.  And they're still there.

Assuming this was a "spread", the person executing it spent about 20 cents.  Since each option is 100 shares this is $20.00 times 100,000 (approximately), or $2 million.

On a 10% decline they will net 5x their bet, or $10 million.

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If the decline is larger they get nothing more, as the short PUT sold against the long (assuming it's a spread) caps their profit.  But that's a hell of a lot of money to slap on the table -- unless you know something.

We'll see if the person who placed the trade indeed does.
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