The S&P 500 climbed to an all-time high Tuesday after a two-month fight with rising interest rates, and the Nasdaq-100 traded 2% above its June record. Yet the two largest options trades of the day targeted a sharp decline in the S&P 500 and a defensive position in Meta, pointing to skepticism beneath the rally.
The S&P 500 traded at a record high on Tuesday after a two-month-long battle with surging interest rates. The Nasdaq-100, meanwhile, is up 15% since its July low and now sits 2% above its previous record from June.
That resilience would normally draw cheers. Instead, the two biggest options trades on the tape Tuesday reeked of skepticism.
A $44 million bet against the S&P 500
About an hour after the opening bell, someone traded a 100,000-lot put spread in the SPDR S&P 500 ETF Trust (SPY) that cost a net $44 million, likely buying $61 million of 655-strike puts expiring in March and selling $17 million of 500-strike puts in the same expiry. The trade is most profitable if SPY falls to $500, a 35% decline from current levels, and starts making money once the S&P 500 drops more than 18%.
Brent Kochuba of options analytics firm SpotGamma said "these March options are the cheapest they've been in 90 days." The Cboe VIX Index slipped below 15 at one point Tuesday. Even so, the put spread was the biggest trade in SPY on a day when options volume ran more than 20% above its 30-day average, about four times the size of the next-biggest trade, a net $11 million call spread, according to SpotGamma data.
The trade largely ran contrary to the overall tone of SPY options trading, according to Barchart's sentiment indicator, which tracks the net direction of premium across trades. Barchart senior market strategist John Rowland said that divergence could reflect bullish retail traders.
A head-scratcher in Meta options
An even bigger trade went off in Meta options the same day, despite the stock rallying 20% over the past month as downloads of its Muse personal assistant soared. In the January 2029 expiry, the longest-duration contract available, someone likely bought back $89 million worth of 560-strike calls they had sold and opened a new position selling $69 million of 700-strike calls at the same expiry.
Selling calls against a long position is standard procedure for many investors, but using in-the-money strikes with more than two years to expiration looks like something different. Kochuba suggested it might be a volatility trader running some kind of arbitrage, admitting the trade was a head-scratcher. Barchart's data showed net sentiment in Meta options was negative.
Source: CNBC (US Top News and Analysis)
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